Source: http://www.elmorehupp.com/aggregator/sources/2?page=10
Timestamp: 2018-01-19 07:21:31
Document Index: 353000689

Matched Legal Cases: ['§1', '§199', '§263', '§ 25136', '§ 25136', '§ 25137', '§ 25120', '§ 18633', '§ 25136', '§ 25136', '§ 25136', '§ 25137', '§ 25136', '§ 25136', '§ 25136', '§ 25120', '§ 25120', '§ 23101', '§ 19172', '§ 23101', '§ 25113', '§ 23101', '§ 25113', '§ 529']

Summary On August 10, 2016, in the case of Estate of George H. Bartell Jr. et al. v. Commissioner, 147 T.C. No. 5, the Tax Court approved a reverse section 1031 exchange where the safe harbor tests under Revenue Procedure 2000-37 (“Rev. Proc. 2000-37”) were not met. The case and the court’s reasoning may support alternatives for structuring reverse exchanges that, for whatever reason, cannot meet the safe harbor.
Jeffrey N. Bilsky Julie Robins David Patch Rebecca Lodovico 1 Under Rev. Proc. 2000-37, the IRS will not challenge the qualification of property as either “replacement property” or “relinquished property” (as defined in section 1.1031(k)-1(a)) for purposes of section 1031 and the regulations thereunder, or the treatment of the exchange accommodation titleholder as the beneficial owner of such property for federal income tax purposes, if the property is held in a qualified exchange accommodation arrangement (“QEAA”). Property is held in a QEAA if all of the following requirements are met:
2 Note that Rev. Proc. 2000-37 was inapplicable to the Bartell case since the exchange was initiated prior to the issuance of the revenue procedure. It is unknown as to whether the applicability of the Rev. Proc. 2000-37 would have affected the court’s opinion. 3 “A taxpayer cannot engage in an exchange with himself; an exchange ordinarily requires a ‘reciprocal transfer of property, as distinguished from a transfer of property for money consideration.’” DeCleene v. Commissioner, 115 T.C. 457, 469.
Summary The IRS issued its LB&I Capitalization of Tangible Property Audit Technique Guide (“ATG”) in September, 2016, as a tool for IRS examiners to use for identifying potential tax issues associated with §1.263(a) and related regulations (“Regulations”). The ATG provides the evolutionary history of the Regulations, overview of the purpose of the Regulations, IRS examination considerations as well as a general discussion of the numerous areas covered by the Regulations.
While the ATG does not provide much new information, it is illustrative for understanding how the IRS will examine tax issues associated with the Regulations. The ATG, 18 chapters spanning 202 pages, provides an overview of the major areas of the Regulations, potential audit issues, how agents are to address prior capitalization studies, audit risk areas and scope, interview questions, and tax treatment of related areas, e.g. §199 deductions, §263A inventory and self-constructed property, and Alternative Minimum Tax, among others.
Details The introductory discussion of the ATG highlights relevant case law and guidance influential to the drafting of the Regulations, including the history of the versions of the Regulations (e.g. proposed, temporary, etc.) leading up to finalization of the Regulations. For quick reference, the ATG includes a useful glossary of terminology commonly used throughout the Regulations and ATG. It also identifies a variety of compliance considerations, such as which version of the Regulations were relied upon for implementation of method changes, review of repair studies, the 2012 LB&I “stand-down,” use of statistical sampling, industry specific guidance, examination considerations, and interview questions.
A significant portion of the narrative in the ATG is also given to the timing of when the method changes were filed, under which version of the regulations, under which Revenue Procedure guidance, and whether method changes were filed and then refiled. All of these factors are addressed in the ATG and provide instruction to Agents regarding the application of the Regulations, to accounting methods taxpayers may or may not have adopted through accounting method changes.
BDO Insights The following recommendations are provided to enable you to begin preparing for an IRS examination related to the tangible property regulations.
Use the ATG as a roadmap for understanding how IRS agents will approach audit issues related to the tangible property regulations.
For taxpayers that have already implemented the Regulations, verify that method changes were made to a proper method of accounting and that method changes were filed properly under the appropriate Revenue Procedure(s).
Managing Director Dave Hammond
Partner Marla Miller
Managing Director Yuan Chou
Managing Director Phil Hofmann
Managing Director Travis Butler
The October 2016 edition of BDO China's China Tax Newsletter features recent tax-related news and developments in China, including the following topics:
Changes in Tax Treatments on Commercial Prepaid Cards
Opportunity For Fiscal Year Taxpayers to Claim Missed Bonus Depreciation on 2015 Assets Download PDF Version
Summary A highlight of the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) is the five-year extension of additional first-year depreciation, or “bonus depreciation,” from 2015 through 2019. Enacted on December 18, 2015, the “PATH Act” retroactively extended 50-percent bonus depreciation to apply to qualified property placed in service in 2015. The enactment came too late for some fiscal year taxpayers that had already filed federal tax returns for tax years beginning in 2014 and ending in 2015, and for taxpayers with a taxable year of less than 12 months beginning and ending in 2015. Consequently, these taxpayers may have failed to claim bonus depreciation on their tax returns for qualifying property placed in service in 2015. Recently, the Internal Revenue Service issued relief guidance in Rev. Proc. 2016-48 to provide affected taxpayers with procedures for claiming, or not claiming, the 50-percent bonus depreciation on such property.
Background In recent years, section 168(k) of the Internal Revenue Code provides an additional first-year depreciation deduction equal to 50 percent of the unadjusted depreciable basis of certain qualified property. For both regular and alternative minimum tax (“AMT”) purposes, bonus depreciation is mandatory for qualified property unless the taxpayer chooses to elect out for any class of property by filing a statement. The regulations to section 168(k) provide that the election not to deduct additional first year depreciation must be made by the due date, including extensions, of the federal tax return for the taxable year in which the taxpayer places the property in service. Once made, generally the election may be revoked only with the written consent of the Commissioner of Internal Revenue.
Options to Claim Missed Bonus Depreciation No Election Out of Bonus Depreciation Made by Taxpayer
Other Depreciation-Related Items In addition to the bonus depreciation guidance addressed above, Rev. Proc. 2016-48 provides guidance for issues related to two other depreciation-related sections affected by the PATH Act. The PATH Act amended section 179(f) by extending the application of that section from any taxable year beginning after 2009 and before 2015 to any taxable year beginning after 2009 and before 2016. Furthermore, the PATH Act amended section 168(k)(4) by allowing corporations to elect not to claim the 50-percent bonus depreciation for certain property placed in service generally after December 31, 2014, and before January 1, 2016, and instead to increase their AMT credit limitation under section 53(c). Rev. Proc. 2016-48 sets forth procedures for affected taxpayers who wish to take advantage of these extensions.
BDO Insights In order to claim any missed bonus depreciation, affected taxpayers should carefully consider the options outlined in Rev. Proc. 2016-48 and take the appropriate corrective action. To the extent that no affirmative election out of bonus depreciation was made on the timely filed 2014 taxable year return or the 2015 short taxable year return, a taxpayer can choose to either amend that return or file a Form 3115, but must be mindful of the limited time period to take advantage of these options.
Marla Miller Yuan Chou Nathan Clark Connie Cunningham Dave Hammond Travis Butler
Summary On September 15, 2016, the California Office of Administrative Law approved the California Franchise Tax Board’s (“FTB”) amendments to the FTB’s current market-based sourcing regulations, 18 Cal. Code Regs. § 25136-2 (the “amended regulations”) and filed the amended regulations with the California Secretary of State. The amended regulations provide sourcing rules for dividends and interest, gross receipts from sales of goodwill, and definitions for marketable securities and sourcing rules for sales of marketable securities. The amended regulations are effective retroactively to taxable years beginning on or after January 1, 2015, and affected taxpayers will have to apply the amended regulations for their 2015 California return on or before October 17, 2016. In addition, and in tandem with California’s economic/factor presence nexus statute, the amended regulations could result in income tax nexus for corporations that are currently non-filers with California and other potential California income tax consequences.
For taxable years beginning on or after January 1, 2011, if the former single sales factor apportionment election was made, and for taxable years beginning on or after January 1, 2013, California has required market-based sourcing for gross receipts from sales of services and intangibles.1 As a general rule under 18 Cal. Code Regs. § 25136-2, such gross receipts are sourced based on where the “benefit of a service is received” or to the extent an intangible is used in the state.
Although the property and payroll factors or sales factor of the corporation whose assets, including goodwill, are sold may be determinable from the taxpayer’s books and records, there will be situations when a taxpayer’s books and records do not contain such information with respect to a corporation that has distributed a dividend to the taxpayer. For example, dividends received from a 50 percent or less owned corporation that is engaged in a unitary business with the taxpayer corporation are dividends that likely are business income and receipts includible in the sales factor; however, it may be problematic to obtain such a payor’s California apportionment and asset information. Under these circumstances, the sourcing of dividends may have to be determined based on a method of reasonable approximation.2
The amended regulations’ sourcing rule for interest income is, as follows:
Interest from loans not secured by real property is sourced to the borrower’s location.
The amended regulations do not define where a borrower is deemed located with respect to interest on a loan not secured by real property. California’s bank and financial corporation income apportionment regulation also sources interest from loans not secured by real property according to the borrower’s location. 18 Cal. Code Regs. § 25137-4.2(c)(3)(D). Under the bank and financial corporation income apportionment regulation, a borrower’s location is the borrower’s commercial domicile in the case of a business borrower or the borrower’s billing address in the case of a borrower that is not engaged in business.3 As with the sourcing of dividends, the amended regulations lack clarity for determining the borrower’s location. If the borrower’s location cannot be determined, then the interest is sourced using a method of reasonable approximation, and if the source of the interest still cannot be reasonably approximated, then the borrower’s billing address is used to source.4
The amended regulations provide two definitions for marketable securities. One for securities and commodities dealers, and another for everyone else. For non-dealers, a marketable security is generally any security traded on an established securities market that is quoted by brokers and dealers. However, a marketable security for this purpose does not include “those types of securities that are traded in transactions specifically excluded from gross receipts under Revenue and Taxation Code Section 25120.”5 As a result, investments and securities held as part of the management of a corporation’s treasury function whose gross receipts are excluded from the California sales factor by Cal. Rev. & Tax. Code § 25120(f)(2)(K) are excluded from the definition of marketable security for non-dealers.
For a securities dealer or a commodities dealer, a marketable security includes stock, pass-through entity interests, notes, bonds, debentures, notional principal contracts, derivatives, commodities, and any other “security” as defined in Sections 475(c)(2), (e)(2)(B), (C), and (D), and 1256(a) of the Internal Revenue Code of 1986, as amended. Notably, the definition of marketable security for dealers does not include that the security must be traded on an established securities market. The gross receipts from marketable securities for such dealers includes dividends and interest.[6] However, receipts from hedging transactions are excluded as gross receipts from marketable securities.[7]
Gross receipts from the sale of a marketable security to a business customer is sourced to the state of that customer’s commercial domicile based on the taxpayer’s books and records. Based on the preponderance of the evidence, the taxpayer may use other credible information to determine the business customer’s commercial domicile and source the receipts to that state.
If the individual customer’s billing address or the business customer’s state of commercial domicile cannot be determined, then the location of the customer may be reasonably approximated.
As addressed above, for a securities or commodities dealer, gross receipts from marketable securities include the dividends and interest thereon. The amended regulations do not define the location of the customer for dividends or interest paid with respect to a marketable security. As a result, dividends or interest received on a marketable security may be sourced to California if the payor’s commercial domicile is in California.
As a result of the amended regulations, a corporation, which was not a California taxpayer because it had no receipts from California other than dividends or interest from stock, securities or investments, and loans in or to one or more corporations with commercial domiciles in California could now have nexus with California. Since dividends and interest are treated as gross receipts from marketable securities for a dealer, the sourcing rule for marketable securities receipts of dealers has a bias in favor of the payor’s commercial domicile. Further, for non-dealers dividends received from payors having California apportionment factors or interest on loans or investments from California borrowers also could have such receipts sourced to California which could result in a California income tax return filing obligation. Therefore, there could be situations where a dividend paid by a U.S. subsidiary of a foreign parent corporation or a U.S. subsidiary paid interest on an intercompany loan from a foreign affiliate could result in California nexus for the foreign corporation. It is FTB’s position that receipts from intercompany transactions are included in determining whether the sales factor threshold of the California economic/factor presence statute is satisfied.
In addition to these California nexus consequences for current California non-filing corporations, there could be California water’s-edge election implications as well resulting from the FTB’s recent Notice 2016-02. See the BDO SALT Alert.
The amended regulations are effective for taxable years beginning on and after January 1, 2015. A taxpayer may elect to apply the amended regulations to open tax years beginning on or after January 1, 2012.
For calendar year taxpayers currently on extension for their 2015 taxable year, the amended regulations will apply to 2015 California Form 100 or Form 100-W tax returns having an extended due date of October 17, 2016.
Likewise, since the amended regulations apply to taxable years beginning on or after January 1, 2015, California taxpayers should assess what, if any, impact the amended regulations may have on their existing deferred tax balances, and adjust accordingly as of the effective date.
The amended regulations in conjunction with California’s economic/factor presence nexus statute could have the consequence of rendering a non-California corporate income/franchise tax filer a filer, particularly dealers in marketable securities and other corporations receiving dividends or interest from California corporations or borrowers.
Given the FTB’s position that intercompany receipts count toward the economic/factor presence nexus sales factor threshold, an intercompany loan by a foreign affiliate excluded from the water’s-edge group to a California subsidiary or affiliate that results in interest sourced under the amended regulations to California, could result in California nexus for the foreign affiliate if the interest sourced to California exceeds the sales factor threshold. The amended regulations sourcing rules for dividends, receipts from sales of goodwill, and receipts from marketable securities could have similar California nexus consequences for current non-filers.
A partnership, including LLCs classified as a partnership for federal and California income tax purposes, must file a California Form 565 (partnership information return) if it is doing business in or has any income from California sources. Cal. Rev. & Tax. Code §§ 18633(a) and 18633.5(a). As with a corporation that has not previously had a California income/franchise tax return filing obligation, a partnership or LLC similarly may now have a California information return filing requirement. California imposes a “per partner/per month” failure to file a partnership information return of $18 for a 12 month maximum or $216 maximum penalty per partner.9
218 Cal. Code Regs. § 25136-2(d)(1)(B). If the taxpayer’s books and records do not contain the property and payroll factors or sales factor information of the dividend distributing corporation, then 18 Cal. Code Regs. § 25136(d)(1)(B) requires a method of reasonable approximation be used to source the dividends. If the sourcing of the dividends is not capable of reasonable approximation, then the regulations direct the taxpayer to use “the billing address of the purchaser” (18 Cal. Code Regs. § 25136-2(d)(1)(C)), which also may be problematic to apply when the intangible receipt being sourced is a dividend from a corporation.
3 18 Cal. Code Regs. § 25137-4.2(b)(2).
4 18 Cal. Code Regs. § 25136-2(d)(1)(B), (C).
5 18 Cal. Code Regs. § 25136-2(b)(5).
7 18 Cal. Code Regs. § 25136-2(b)(6). See also Cal. Rev. & Tax. Code § 25120(f)(2)(L). The “treasury function” exclusion from gross receipts includible in the California sales factor under Cal. Rev. & Tax. Code § 25120(f)(2)(K) does not apply to securities or commodities dealers, because they would be “principally engaged in the trade or business of purchasing and selling intangible assets of the type typically held in a taxpayer’s treasury function.”
8 California’s economic/factor presence nexus statute is indexed for inflation. Cal. Rev. & Tax. Code § 23101(b)(2), (c). California’s sales factor presence threshold was $500,000, $509,500, $518,162, $529,562, and $536,446 for 2011, 2012, 2013, 2014, and 2015, respectively.
9 Cal. Rev. & Tax. Code § 19172.
Missouri Issues Sales Tax Notice to Taxpayers Regarding Potential Changes to the Taxability of Delivery Changes Download PDF Version
Summary The Missouri Department of Revenue recently issued a notice to taxpayers regarding the Missouri Supreme Court’s decision in Alberici Constructors, Inc. v. Director of Revenue, 452 S.W.3d 632 (Mo. 2015) concerning the taxability of delivery charges for sales tax purposes. A 2015 law change requires the Department to send such a notice if a decision of the Department, the Administrative Hearing Commission, or a court modifies the taxability of an item, and a reasonable person would not have expected the decision based on prior law or regulation. However, the notice is unclear as to the modification to the law, and its format raises a concern that future notices could be similarly confusing.
Details The Notification Requirement
For taxable years beginning on or after January 1, 2011, Cal. Rev. & Tax. Code § 23101(b) was added. Section 23101(b) established a “factor presence economic presence” standard for an out-of-state corporation, including a unitary foreign affiliate, to be considered “doing business” in California. Among other factor-presence criteria, an out-of-state corporation with more than $500,000 of gross receipts sourced to California under California’s sales factor sourcing rules was now deemed “doing business” in California and subject to income/franchise tax.1 When applied to a unitary foreign affiliate with no physical presence but more than $500,000 of California sales after January 1, 2011, the affiliate becomes a California taxpayer. Since the unitary foreign affiliate never made nor consented to the making of the water’s-edge election, the election could be terminated for the entire group under Section 25113, an issue that the FTB has raised in audit examinations.
FTB Notice 2016-02
In FTB Notice 2016-02, issued on September 9, 2016, the FTB acknowledges that neither Cal. Rev. & Tax. Code § 25113 nor the regulations thereunder address the effect on an existing water’s-edge election due entirely to a change in law (i.e., enactment of Cal. Rev. & Tax. Code § 23101(b)) that changes the status of a non-electing unitary foreign affiliate from a non-taxpayer and non-member to a California taxpayer. The Notice addresses three situations and provides the following “treatments”:
First, as noted above, if a unitary foreign affiliate has United States Income both before and after the taxable year in which California’s “factor presence economic nexus” statute makes the affiliate a taxpayer member, the deemed election provisions of Cal. Rev. & Tax. Code § 25113(b)(4) apply and the group’s water’s-edge election remains intact.
Under the second and third situations, the commencement date of the unitary foreign affiliate’s deemed election is the same as the commencement date of the taxpayer members who actually made the existing California water’s-edge election.
The “Conditions”
FTB Notice 2016-02 may provide relief for some California water’s-edge groups having to contend with California’s “factor presence economic nexus” statute. Unfortunately, any relief that the “treatments” provided by FTB Notice 2016-02 are limited, including for taxable years ending on or before December 31, 2016.
For the preceding treatments to apply, FTB Notice 2016-02 imposes the following conditions, all of which must be satisfied:
There must have been a valid water’s-edge election made prior to September 9, 2016;
At the time the water’s-edge election was made, the unitary foreign affiliate could not make the election because the affiliate was not subject to California income/franchise tax;
The unitary relationship between the water’s-edge group and the foreign affiliate remained continuously in effect between the time the water’s-edge election was made and the time the foreign affiliate became a California taxpayer; and
A water’s-edge election is effective for an initial term of seven years and continues each taxable year thereafter unless a worldwide combined reporting election is made. It could be argued that the issues or situations raised in FTB Notice 2016-02 only arise if or when the “factor presence economic nexus” statute results in a unitary foreign affiliate becoming a California taxpayer after the first seven years of the water’s-edge election. The FTB could also take a position that the water’s-edge filing continues until the end of the first seven-year period and then terminates. The FTB did not address this issue and whether the economic/factor presence in California of the unitary foreign affiliate could terminate the group’s waters-edge election in the first seven years of the election.
There are some water’s-edge groups that, due to unforeseen circumstances, would prefer to terminate the water’s-edge election prior to the expiration of the seven-year period. In general, the only way a water’s-edge group can terminate the election prior to the expiration of the first seven years is to request permission from the FTB. However, if a non-member unitary foreign affiliate (i.e., an affiliate without United States Income) establishes economic/factor nexus by simply selling inventory to its California affiliate in excess of the California sales threshold, then the water’s-edge election could be terminated without having to seek permission. At this point, it is not certain if this issue will apply to the first seven years of a water’s-edge election since it was not addressed by the FTB Notice.
Further, uncertainties with the application of California’s market-based sourcing rules under the facts and circumstances may make it difficult for the California water’s-edge group to determine with certainty whether a unitary foreign affiliate has California sourced income. If the foreign affiliate has service revenue, enters into a licensing agreement, or sells intangible property, it may be difficult to determine if the income will be sourced to California and will establish economic nexus as a result.
It is unclear if the issues addressed in FTB Notice 2016-02 apply to the first seven years of the water’s-edge election, since the Notice did not make such a distinction. It is possible that a water’s-edge group could terminate a water’s-edge election in the first seven years of the election without receiving FTB approval if a unitary foreign affiliate that does not have United States Income establishes economic/factor nexus in California and is therefore considered a California taxpayer.
IRS Identifies New Foreign Tax Credit Splitter Arrangements Relating to Certain Foreign Initiated Adjustments Download PDF Version
Summary On September 15, 2016, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) issued Notice 2016-52 (the “Notice”) which provides that Treasury and the Service intend to issue regulations under Internal Revenue Code (“IRC”) Section 909 to address the separation of related income from foreign income taxes paid by a “Section 902 corporation” pursuant to certain foreign-initiated adjustments.1 The regulations detailed in the Notice are intended to apply to foreign income taxes paid on or after September 15, 2016.
BDO Insights BDO can assist our clients with understanding the complexities of foreign tax credit splitter arrangements and also advise on how the rules described in the Notice may impact the ability to claim foreign tax credits in certain situations when there is a foreign-initiated adjustment.
Partner [1] A “Section 902 corporation” is a foreign corporation with direct or indirect shareholders that includes at least one domestic corporation owning at least 10 percent of the foreign corporation’s stock (a “Section 902 shareholder”). [2] It should be noted, however, that the Notice specifically provides that no inference is intended to be made as to whether (1) payments made pursuant to any particular foreign-initiated adjustment, including those arising under EU State aid law, qualify as payments of creditable foreign income taxes, or (2) taxes paid by a U.S. person pursuant to a foreign-initiated adjustment to the tax liability of a Section 902 corporation are eligible for a direct foreign tax credit under IRC Section 901.
China Tax Newsletter - September 2016
The September 2016 edition of BDO China's China Tax Newsletter features recent tax-related news and developments in China, including the following topics:
Notice on the Revision and Promulgation of High-tech Enterprises Accreditation and Administration Guidelines
Administration of Individual Income Tax Collection
Issuance of the Certificate of Chinese Fiscal Resident
The Indian Tiffin X - from BDO India The latest Indian Tiffin issue (X) covers:
Indian Economic Update – A look at the present government's commitment actualization of the economic reforms in India, from the desk of the Managing Partner.
Your Individual Taxpayer Identification Number May Be Expiring Download PDF Version
Renewing an ITIN Unused ITINs – If an individual’s ITIN has not been reflected on either a 2013, 2014, or 2015 income tax return, the ITIN will no longer be valid as of January 1, 2017. The period to renew will begin on October 1, 2016, and taxpayers must utilize Form W-7 (marked with a “Rev. 9-2016” revision date). The revised Form W-7 should be available in September 2016.
How to renew To renew, taxpayers must complete form W-7, Application for Individual Taxpayer Identification Number, utilizing version Rev. 9-2016, which should be available in September 2016. Taxpayers can submit their Form W-7 beginning on October 1, 2016. The IRS does not require a tax return to be included with Form W-7 with the remitted renewal application. Once completed, a taxpayer can either mail the form along with certain required certified documents to the IRS, make an appointment with the IRS Taxpayer Assistance Center, or utilize an Acceptance Agent to complete the filing. As with all Form W-7s, without the proper required documentation affixed to the form, the application can either be denied or delayed. The ITIN process and approval can be lengthy, so we recommend that the form and its attachments are properly submitted.
BDO Knows BDO USA, LLP is a Certifying Acceptance Agent (“CAA”) and can assist with obtaining an ITIN and submitting any required forms. Please contact any member of BDO Acceptance Agent team for assistance in renewing your identification number.
Office BDO's Certified Accepting Agents Atlanta D. Scott Potts
Senior Manager, Expatriate Tax Services Charlotte Donna Chamberlain
Managing Principal, Expatriate Tax Services Charlotte Anita Schilling
Manager, STS - Expatriate Tax Services Detroit Lucia Spevacek
Senior Manager, Expatriate Tax Services Houston Jim Miller
Managing Director, Expatriate Tax Services Houston John Pao
Senior Manager, Expatriate Tax Services Houston Mesa Hodson
Principal, Expatriate Tax Services New York Sima Devi
For more information on your exposure the ERISA Title I penalties and the increased amounts,
Repair v. Capitalization and Depreciation Changes Will Affect 2016 Business Returns The following briefing covers recent developments relating to repair, capitalization, and depreciation as embodied in the final "tangible property regulations," also known as the "repair regulations." In addition, significant changes to depreciation provisions, such as bonus depreciation and the Section 179 allowance, were made by the Protecting American from Tax Hikes Act of 2015 (PATH Act) (P.L. 114-113).
North Carolina Issues Corporation Income Tax Proposed Market-Based Sourcing Rules and Makes Changes to the Sales/Use Tax that Impact Repair, Maintenance, and Installation Services Download PDF Version
Summary Recently, North Carolina Governor Pat McCrory (R) signed S.B. 726, 2015-2016 Sess. (N.C. 2016), S.B. 729, 2015-2016 Sess. (N.C. 2016), and H.B. 1030, 2015-2016 Sess. (N.C. 2016) into law. Together, these rules (i) propose market-based sourcing rules for Corporation Income Tax purposes and require the Department of Revenue to issue related proposed regulations; (ii) create sales and use tax exemptions related to certain repair, maintenance, and installation (“RMI”) services; (iii) make various changes to the Individual Income Tax; and (iv) update the state’s Internal Revenue Code (“IRC”) conformity date.
Details Corporation Income and Franchise Tax
Use Tax Expansion – Effective January 1, 2017, S.B. 729 expands the definition of storage to include holding property in the state for any period of time, but excepts property held as inventory.
Parental Savings Trust Fund Withdrawals – Beginning January 1, 2016, S.B. 729 requires an addition to the federal adjusted gross income starting point for an amount deducted in a prior year to the extent the amount was withdrawn from the Parental Savings Trust Fund of the State Education Assistance Authority and not used to pay for qualified higher education expenses of the beneficiary, unless the non-qualified use was made without penalty under IRC § 529 due to the beneficiary’s death or disability.
Tennessee Department of Revenue Expected to Further Advance Sales and Use Tax Economic Nexus Rule Download PDF Version
Summary On August 8, 2016, the Tennessee Department of Revenue held a public hearing on Proposed Rule 1320-05-01-.129 that would establish a sales and use tax economic nexus standard in the state beginning 90 days after the Department files a final rule with the Tennessee Secretary of State.
Brazilian Disclosure System
Summary On May 9, 2016, the Brazilian Federal Tax Authorities (RFB) issued Normative Instruction 1,634/2016 (NI 1,634), which updates the requirements of the Corporate Taxpayer Identification (“CNPJ”). The CNPJ is the mandatory taxpayer ID for every legal entity that has operations or has assets in Brazil.
Discussion NI 1,634/2016 requires businesses to disclose the chain of ownership up to the ultimate beneficial owners. The new disclosure requirements are in line with international guidelines to improve transparency and facilitate a more effective battle against corruption and money laundering. Corporate entities that are beneficiaries are subject to these requirements. The ultimate beneficiary includes individuals with significant influence or control, directly or indirectly, over the entity.
Significant influence refers to an individual that owns more than 25 percent (directly or indirectly), or holds or exercises the preponderance in corporate resolutions and the power to elect a majority of the entity's management, even without controlling it.
In the event taxpayers do not comply with the new requirements, the CNPJ will be suspended and transactions with financial institutions could be restricted. Furthermore, without a valid CNPJ, the company will not be able to issue an invoice or make a purchase.
Businesses are obligated to comply with the CNPJ from January 1, 2017, for the taxpayer that requests its registration from the same date on. Taxpayers that register before January 1, 2017, should inform the beneficial owners electronically in case of a change in the register no later than December 31, 2018.
Partner, National Tax Office Fabrizia Hadlow
Managing Director Scott Hendon
Summary Employers and insurance providers who issue Form 1095 with missing or erroneous taxpayer identification numbers (TIN) will not be penalized under the information reporting rules, provided “reasonable efforts” are made to obtain missing or correct TINs. Proposed regulations under Internal Revenue Code Section 6055 issued on July 29, 2016, specify the steps to be taken that satisfy the “reasonable efforts” requirement.
Immediate Action Plan Employers should adopt procedures that satisfy the initial solicitation by incorporating a request for TINs for all individuals enrolling in health care coverage after July 29, 2016, and ensure the request is a part of any future open enrollment process in order to satisfy the initial solicitation requirements. A second solicitation should be made 75 days after the application, and a third solicitation by December 31 of the next year, if necessary.
Details The information reported under Section 6055 allows individuals to establish, and the IRS to confirm, that said individuals maintained the requisite healthcare coverage during the year and are not subject to penalties under the Affordable Care Act.
Missing TIN Incorrect TIN Description Employer does not obtain a TIN for a covered individual. Employer obtains an incorrect TIN for a covered individual. IRS notifies employer of an incorrect TIN through a Form 972-CG or penalty notice under Section 6721.* Initial solicitation The date the employer receives a substantially complete application for new coverage (or to add an individual to existing coverage).
For all individuals enrolled in coverage prior to July 29, 2016, for which a TIN has not been obtained as of such date, the 75-day period ends October 12, 2016. By December 31 of the year in which the employer is notified of the incorrect TIN (or by January 31 of the following year if notified in the preceding December). Third solicitation December 31 of the year following the year of the initial solicitation. The employer must undertake another solicitation if notified in any year following the year of the notification described above.
Forms of Solicitation TIN requests may be made in a number of different formats: (i) the provision of a renewal application that requests TINs for all covered individuals if sent by the applicable deadlines; (ii) subsequent solicitations may be delivered to the covered individuals with a return envelope; and (iii) by electronic means in accordance with IRS rules.
Penalties Failure to report the TIN of each covered individual on the Form 1095-B (or 1095-C, Part III) filed with the IRS and furnished to the employee may constitute an incorrect information return subject to penalties. The combined penalties for failure to file a correct information return with the IRS (Section 6721) and failure to furnish a correct information return to an employee (Section 6722) are up to $500 per incorrect statement ($6 million annual cap). See our prior alert.
Penalty Relief for 2015 The IRS will not impose penalties for returns and statements filed and furnished in 2016 to report coverage in 2015 reporting incorrect or incomplete information on the return or statement, including TINs. However, no relief is provided to employers that do not make a good faith effort to comply with the reporting requirements. Although the IRS fails to specify what constitutes a “good faith effort” employers can show that they have made good faith efforts to comply with the information reporting requirements. This relief applies to incorrect or incomplete information, including the omission of TINs to be reported on a 1095.