| Federal Tax News |      |
| Supreme Court Rebuffs IRS: Basis Overstatement Not Omission from Gross Income Regulations Enhance Employee Deduction for Local Lodging Expenses Incurred in Trade or Business IRS to Issue Guidance on Application of Normal Retirement Age Rules to Governmental Plans Roth IRA Is Ineligible S Corporation Shareholder, Ninth Circuit Affirms Estate Could Deduct Life Insurance Proceeds Paid to Ex-Spouse, Accrued Interest on Loan Law Firm Staff Were Employees, Not Independent Contractors Proposed Reliance Regulations Illustrate Program-Related Investments Final Regulations Require Banks to Report Interest Paid to Non-resident Aliens IRS Official Reminds 990 Filers Not to Include Social Security Numbers Specifications for Preparing and Using Substitute Forms W-2c and W-3c Updated 2013 Limits for HSAs Released |
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| Washington Update | |
Foreign Corporations Supreme Court Rebuffs IRS: Basis Overstatement Not Omission from Gross Income The Supreme Court has resolved a split among federal appeals courts by concluding that an overstatement of basis does not result in an omission of income for statute of limitations purposes (United States v. Home Concrete & Supply, LLC, SCt, 2012-1 ustc ¶50,315). The outcome was controlled by the court's 1958 decision in The Colony, Inc. v. Commissioner, SCt, 58-2 ustc ¶9593, 357 US 28. As a result, the IRS has three years, rather than six, to act against taxpayers that overstate basis. Comment The Supreme Court has spoken—the statute is clear and the regulations are improper. "But it is difficult to understand the state of the law regarding deference to regulations after this decision," Matthew Lerner, partner, Steptoe & Johnson, LLP, Washington, D.C., stated. Background Under Code Sec. 6501(a), the IRS ordinarily must assess a deficiency against a taxpayer within three years after the return was filed. In Home Concrete, the IRS failed to act within three years of the filing of the return. Under Code Sec. 6501(e)(1)(A), the three-year period is extended to six years if a taxpayer "omits from gross income an amount properly includible therein" that exceeds 25 percent of the amount of gross income shown on the return. Since the IRS issued a deficiency notice within a six-year period, the statute would have applied, as long as the taxpayer was treated as having omitted gross income. The issue was whether the taxpayer should be treated as having omitted gross income when the taxpayer overstated its basis in property sold, thereby understating the gain realized on the sale. Comment The issue has arisen in a number of cases, most notably in "Son-of-BOSS" tax shelter cases, where the taxpayer overstated basis in a partnership interest, resulting in an understatement of income. In this case IRS failed to issue a notice of deficiency within three-years of the time the taxpayer had filed its return but did issue a notice within six years of the time the return was filled. A district court found that an overstatement of basis triggered the six-year statute of limitations. However, on appeal (Home Concrete & Supply, LLC v. United States, CA-4, 2011-1 ustc ¶50,207, 634 F3d 24), the U.S. Court of Appeals for the Fourth Circuit concluded that the plain meaning of "omit" clearly meant to leave out or to fail to mention. Since the taxpayers had not left out their transaction (and had, in fact, provided its details on their return), the three-year statute of limitations applied. IRS Regulations While litigating the statute-of-limitations issue, the IRS issued final regulations providing that an overstatement of basis that resulted in an understatement of income was an omission from gross income under Code Sec. 6501(e)(1)(A). The IRS argued that, under National Cable & Telecommunications Assn. v. Brand X Internet Services, SCt, 545 US 967, the agency had the authority to issue regulations. The Supreme Court had found that a court's prior judicial construction of a statute trumps agency regulations only if the court held that its construction follows from the unambiguous terms of the statute. Comment In Brand X, Justice Scalia, in his dissent, was concerned about the mischief that could be created by giving an agency the power to change a trial court decision by regulation, Welty said. Scalia recognized that Brand X opened the door to this type of post-trial regulation. In Home Concrete, Scalia said that he would overrule that part of the Brand X opinion, Welty observed. Comment Lerner explained that the Court's four-person plurality cites the Brand X decision, which appears to allow regulators to act unless a court has determined that a statute is unambiguous. The plurality even notes that the Supreme Court in Colony held that the original statute was "not unambiguous," which would seem to indicate that Treasury is free to issue regulations interpreting the statute differently than the Court. However, the plurality then fails to follow Brand X, which would seem to justify the IRS's rulemaking in this case, but does not overrule or distinguish Brand X, Lerner said. Justice Scalia, in his concurrence in Home Concrete, recognizes the dilemma, Lerner said, and would have merely held that the Supreme Court's opinion in Colony (limiting the statute to three years for an omission) was controlling, based on taxpayers' settled expectations of a three-year statute of limitations. Although it is not stated by the plurality, one might conclude that the tests for a lack of ambiguity are different for Chevron, U. S. A. Inc. v. Natural Resources Defense Council, Inc., SCt, 467 US 837 (the statute on its face), and Brand X (the statute plus the traditional tools of statutory interpretation, like legislative history). Colony Controls One of the issues for the Supreme Court was whether to give deference to the agency's regulations. The Court rejected them as inconsistent with its decision in Colony. "In our view, Colony has already interpreted the statute, and there is no longer any different construction that is consistent with Colony and available for adoption by the agency," Justice Breyer wrote. Comment Lerner pointed out that the court failed to address the question of the deference to be given to regulations issued during litigation. Lerner previously commented that one court, the Fifth Circuit, has stated that deference to what appears to be nothing more than an agency's convenient litigating position is "entirely inappropriate." Comment "Several Supreme Court decisions say that, if a statute is ambiguous, an agency can issue regulations that are entitled to deference," Welty said. In Colony, the Supreme Court noted that the statute at issue was not unambiguous, but resolved the case in favor of the taxpayer after using traditional rules of statutory construction. "In Home Concrete, the plurality opinion effectively held that pre-Chevron opinions— such as Colony—construing a statute as ambiguous are not controlling. Indeed, pre-Chevron findings of ambiguity are themselves ambiguous," Welty said. "For an agency's regulations to receive Chevron deference, a pre-Chevron finding of ambiguity must be coupled with gap filling authority." Reference: PTE §39,505.10 Regulations Enhance Employee Deduction for Local Lodging Expenses Incurred in Trade or Business The IRS has issued proposed reliance regulations allowing an employee to treat local lodging expenses as either a working condition fringe benefit or reimbursable under an accountable plan if, under the facts and circumstances, the expenses are ordinary and necessary to conduct a trade or business (NPRM REG-137589-07). In addition, the proposed regulations would allow an employer to treat these expenses as deductible business expenses. The IRS also provided a new safe harbor regarding the deduction of local lodging expenses. Under current regulations, employees may be able to deduct expenses for job-related travel away from home, but generally cannot deduct lodging expenses for the costs of staying in the locality where they work. If the employer reimburses the employee or pays for the lodging expenses directly, the employer, in most cases, can deduct the payments as compensation expenses, and the employee has to recognize the payments as compensation income. In the preamble to the proposed regulations, the IRS explained that the following reasons for using local lodging are considered personal, not business-related: a weekend at a luxury hotel provided by the employer; lodging to avoid a long-distance commute; lodging because the employee must work overtime; housing for a recently relocated employee; and lodging for the employee's indefinite personal use. In these circumstances, the expenses are not deductible by the employee, and are treated as compensation if paid by the employer. In 2007, the IRS announced in Notice 2007-47, 2007-1 CB 1393, that it would amend the current regulations to change the treatment of local lodging. At that time, the IRS indicated without elaboration that, until it amended the regulations, it would not challenge an employee's deduction for local lodging if the lodging was temporary and was "necessary" for the employee to participate in a business function of the employer. The IRS has now proposed to amend its regulations under Code Secs. 162 (trade or business expenses) and 262 (personal expenses). Instead of disallowing all local lodging expenses, the new regulations provide that the expenses are deductible if incurred in carrying on a taxpayer's trade or business, based on all the facts and circumstances. Examples in the proposed reliance regulations allow an employee deduction (or treat an employer payment as non-taxable): to attend employer-mandated training at a local hotel; to house athletes for last-minute training and to ensure the players' preparedness; and for housing an employee who is on call outside of normal working hours to respond to business emergencies. While the proposed regulations are not effective until issued as final, the IRS has provided that taxpayers can rely on them for deducting expenses paid or incurred during a tax year for which the period of limitations on credit or refund has not expired. The proposed regulations also provide a safe harbor for an employee to deduct local lodging expenses if:
Reference: PTE §§7,105.10 and 9,505 IRS to Issue Guidance on Application of Normal Retirement Age Rules to Governmental Plans The IRS has announced plans for future guidance on the applicability of the normal retirement age rules to governmental plans (Notice 2012-29, 2012-18 IRB 872). The guidance would clarify whether a governmental plan that does not allow the payment of pension benefits before age 62 must include a definition of normal retirement age in the plan. The guidance would also modify the age-50 safe harbor rule for public safety employees. The IRS also intends to amend existing regulations to extend the effective date for governmental plans. Comment Code Sec. 411(a)(8) defines normal retirement age as the earlier of: (1) the time the plan participant attains the normal retirement age under the plan, or (2) the later of: (a) the time the participant attains age 65, or (b) the fifth anniversary of participation in the plan. This definition does not apply to a governmental plan that is not subject to Code Sec. 411(a)–(d), provided that the governmental plan satisfies the requirements in Code Sec. 411(e)(2). For governmental plans, the definition may be relevant in a variety of circumstances relating to plan qualification, including the payment of pension benefits during employment. The IRS issued regulations concerning the normal retirement age rules in 2007. The normal retirement age regulations provide exceptions to the general prohibition against the payment of pension benefits during employment. Under the normal retirement age regulations, pension payments may begin during employment: (1) after the attainment of normal retirement age (as defined in Reg. §1.401(a)-1(b)); or (2) after an employee reaches age 62. In general, the normal retirement age under a plan cannot be earlier than the earliest retirement age in the employee's industry. The normal retirement age regulations further provide various safe harbors for satisfying this requirement. For instance, a normal retirement age of 62 years or older is deemed to satisfy the requirement, and a normal retirement age of 50 years or older is deemed to satisfy the requirement for public safety employees. The anticipated guidance would modify the normal retirement age regulations to provide that a governmental plan is not required to define normal retirement age if: (i) it is not subject to Code Sec. 411(a)–(d); and (ii) it does not allow the payment of pension benefits during employment before age 62. The guidance would also modify the age-50 safe harbor rule to allow a normal retirement age of age 50 for public safety employees, whether or not the employees are covered by a separate plan. Comment "Postponing the application to 2015 will provide an opportunity for government plans to understand the rules and where they exist. The guidance helps highlight that there are things that do apply to government plans and gives them an opportunity to comply before the effective date," Carl Mowery, Managing Director, Grant Thornton LLP, Chicago, stated. The IRS also intends to amend the effective date of the normal retirement age regulations for governmental plans to annuity starting dates after the later of: (1) January 1, 2015; or (2) the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date that is three months after the final regulations are published. Comment "Notice 2012-29 did not indicate the timing of the release, although we anticipate the revised regulations to be issued within the two-year extension period," Elizabeth Dold, Principal, The Groom Law Group Chartered, Washington, D.C., stated. Reference: PTE §24,120.10 Roth IRA Is Ineligible S Corporation Shareholder, Ninth Circuit Affirms Affirming the Tax Court, the Court of Appeals for the Ninth Circuit has found that a Roth IRA was not an eligible shareholder of an S corporation (Taproot Administrative Services, Inc. v. Commissioner, CA-9, 2012-1 ustc ¶50,256). The Ninth Circuit rejected the taxpayer's claim that IRAs and Roth IRAs should be treated as indistinguishable from their individual owners. The court emphasized that the legislative history of S corporations favors limited eligibility for shareholders. Comment The Ninth Circuit noted that if it had ruled in favor of the taxpayer, the outcome would have been that shareholders could employ Roth IRAs to avoid taxation on S corporation profits. The IRS has identified in recent years abusive schemes that purport to transfer ownership of S corporations to Roth IRA owners. The taxpayer was an S corporation. The S corporation's sole shareholder in the tax year at issue was a custodial Roth IRA for the benefit of an individual. The IRS subsequently determined that the Roth IRA did not qualify as an eligible shareholder of the S corporation. The taxpayer filed suit in the Tax Court. Although no statute or regulation in effect during the tax year in question prohibited a Roth IRA from owning S corporation stock, the Tax Court relied on Rev. Rul. 92-73, 1992-2 CB 224, to find that a Roth IRA is not an eligible S corporation shareholder. The taxpayer appealed to the Ninth Circuit. Comment In Rev. Rul. 92-73, the IRS determined that a trust that qualifies as an IRA is not a permitted shareholder of an S corporation. On appeal, the taxpayer argued that the IRAs and Roth IRAs as investment instruments are indistinguishable from their individual owners. Therefore, the S corporation's shares were owned by an eligible shareholder within the meaning of the S corporation statute. The Ninth Circuit disagreed. The Ninth Circuit found that Rev. Rul. 92-73 provides persuasive guidance that IRAs are ineligible S corporation shareholders. The distinguishing feature is the deferred income tax treatment, which differentiates IRAs from other beneficiaries, the court held. The Ninth Circuit also rejected the taxpayer's argument that Reg. §1.1361-1(e)(1) authorizes ownership of S corporation stock by IRAs and Roth IRAs created as custodial accounts. The court found that custodial IRAs and Roth IRAs are different in kind and therefore distinguishable from other custodial accounts. The latter form of custodial account functions to hold shares for a person who cannot legally hold them, the court found. Income is taxed currently to that person. In contrast, individuals who could legally hold the underlying assets instead choose to place them in an IRA or Roth IRA, thereby deferring or exempting taxation of any current income. Additionally, the Ninth Circuit rejected the taxpayer's argument that Congress intended to restrict the number but not the type of S corporation shareholders. When Congress first added Subchapter S in 1958, the list of permissible shareholders was limited to domestic individuals and estates. Over the years, Congress has gradually expanded the limits of eligibility. The American Jobs Creation Act of 2004, P.L. 108-357, extended the types of eligible trusts to banks whose stock is held in a trust qualifying as an IRA or a Roth IRA. However, the 2004 expansion was very narrow, the court concluded. Reference: PTE §28,820.25 Estate Could Deduct Life Insurance Proceeds Paid to Ex-Spouse, Accrued Interest on Loan The proceeds of a decedent's life insurance policy payable to his ex-wife were included in the decedent's gross estate, the Tax Court has held (Estate of Kahanic v. Commissioner, Dec. 58,992(M), TC Memo. 2012-81). However, the estate was entitled to deduct the proceeds as debt owed to the ex-spouse. The estate could also deduct accrued interest on a loan from the ex-wife that the estate used to pay its estate tax liability. The decedent, a medical doctor, had taken out several life insurance policies, each of which named his wife as the primary beneficiary. After the decedent's subsequent divorce from his wife was finalized, he neglected to honor the terms of the divorce agreement regarding the insurance policies, and the ex-wife took legal action. According to the terms of a settlement agreement, the former wife and their children were to remain as sole beneficiaries on the policies, and the decedent could not transfer or modify the policies until he complied with the divorce agreement. At the time of his death, the decedent had still failed to comply, and his ex-wife received a death benefit of nearly $2.5 million from the policy at issue. By the time estate taxes were due, the decedent's estate had dissipated in value and did not have sufficient liquid assets to pay its estimated estate taxes. With limited cash on hand and desiring to avoid a forced sale of the decedent's medical practice, the estate executed a loan agreement to borrow funds from the ex-wife to pay the estate taxes. The proceeds of insurance on a decedent's life are included in his gross estate if they are payable to beneficiaries and the decedent has any incidents of ownership in the policy at his death. An incident of ownership includes a reversionary interest, a possibility that the policy or its proceeds might return to the decedent or his estate, but only if the interest's value is more than 5 percent of the policy's value immediately before the decedent's death. An estate can deduct allowable administration expenses as well as debt that encumbers property included in the gross estate. If the debt is based on a promise or agreement, a deduction is permitted only to the extent the debt is bona fide and was incurred for adequate and full consideration. Transfers made under certain written marital settlement agreements when spouses divorce within three years after the agreement is entered are treated as meeting the adequate consideration requirement. With some limitations, an estate also can borrow money to satisfy its federal estate tax liability and deduct interest incurred as an administration expense. The Tax Court determined that the decedent possessed incidents of ownership in the life insurance policy, so the full amount of the policy's proceeds were includible in the gross estate. The court found that the decedent retained a reversionary interest in the policy, the policy's fair market value was more than zero, and the estate provided no evidence that the reversionary interest's value was less than 5 percent of the policy's value. However, the court further found that the transfer of the insurance policy proceeds to the ex-wife was for adequate and full consideration, because the transfer was made under the ex-spouses' agreement to settle their marital and property rights. Accordingly, the estate was entitled to deduct the value of the entire policy from the gross estate. The court also ruled that estate was entitled to deduct the interest on the ex-wife's loan. At the time the loan was made, the ex-wife intended to create a genuine debt, and the estate reasonably believed that it could repay the loan. The estate had not repaid the loan due to unforeseen circumstances that reduced the value of estate assets, the court found. The estate also had no right to seek contribution from the ex-wife under the decedent's will, because at the time of the loan it had sufficient assets to pay the estate tax but the assets were not liquid. When the taxes were due, the estate could not sell the decedent's practice, and a forced sale would have resulted in financial loss. The court found that the estate had the funds necessary to pay the accrued interest and had credibly stated that it would pay. Reference: PTE §34,120.05 Law Firm Staff Were Employees, Not Independent Contractors Three associate attorneys and a law clerk were employees of a law firm, the U.S Court of Appeals for the Fifth Circuit has held (Donald G. Cave, a Professional Law Corp. v. Commissioner, CA-5, 2012-1 ustc ¶50,258). The weight of several factors supported employee status over independent contractor status, and the Tax Court's findings were not clearly erroneous. The president of the law firm and the firm's accountant believed it was appropriate to treat the firm's workers as independent contractors. However, after considering several factors, the Tax Court held that the staff were employees and not independent contractors (Donald G. Cave A Professional Law Corp. v. Commissioner, Dec. 58,558(M), TC Memo. 2011-48). Thus, the firm was liable for employment taxes. Like the Tax Court, the Fifth Circuit considered several factors, including degree of control, opportunities for profit and loss, investment in facilities, permanency of the relationship, and skill required in providing independent services. When analyzing the degree of control over the attorneys, the Tax Court focused on the fact that the firm hired the associate attorneys, assigned cases to them, reviewed pleadings and correspondence, and determined whether the attorneys would be reimbursed for case expenses. An employee relationship was also indicated by the fact that although the attorneys' opportunity for profit depended on their own efforts, they bore no risk. Similarly, employee status was suggested by the fact that there was no investment in the facilities by the attorneys because the firm provided all office equipment. The relationship of the parties was permanent, as the attorneys worked for the firm for between 3 and 12 years and did not work for other firms during that time. Likewise, the skills provided by the attorneys were that of an employee. Although the attorneys were highly educated professionals, which could indicate an independent contractor status, they were not specialists called in to solve a specific problem, and instead performed the essential, everyday tasks associated with the firm's business. With respect to the law clerk, the Tax Court held that the firm exercised complete control over the assignment of work. Although the law clerk also worked for other lawyers and law firms, providing services to multiple employers does not necessitate treatment as an independent contractor. The law clerk was paid a flat salary regardless of the amount of work he performed, and there was no evidence that he could reject any work he did not want to perform. The law clerk could neither increase his profit through his own skill and initiative, nor suffer the risk of any losses. He also made no investment in the facilities, as the firm provided him with the amenities needed to complete his work. Reference: PTE §22,015.05 Proposed Reliance Regulations Illustrate Program-Related Investments Recently released proposed reliance regulations provide new examples illustrating investments that qualify as program-related investments (PRIs) under the private foundation rules (NPRM REG-144267-11). Current regulations provide examples of PRIs, but the IRS believes that it should offer additional examples that reflect current investment practices and illustrate certain principles. Private foundations and their managers are subject to excise taxes under Code Sec. 4944 if they make jeopardizing investments. A PRI is not considered a jeopardy investment. A PRI is an investment whose primary purpose is to accomplish a charitable, religious, scientific, or other qualified purpose (even if the purposes are carried out by non-charitable organizations) with no significant purpose either to produce income or capital appreciation or to accomplish legislative or political activity. The proposed regulations add nine examples of PRIs, illustrating seven principles:
The new examples demonstrate that a PRI may accomplish a variety of charitable purposes, such as advancing science, combating environmental deterioration, and promoting the arts. Several examples also demonstrate that an investment that funds activities in one or more foreign countries, including investments that alleviate the impact of a natural disaster or that fund educational programs for poor individuals, may further the accomplishment of charitable purposes and qualify as a PRI. One example illustrates that the existence of a high potential rate of return on an investment does not, by itself, prevent the investment from qualifying as a PRI. Another example illustrates that a private foundation's acceptance of an equity position in conjunction with making a loan does not necessarily prevent the investment from qualifying as a PRI, and two examples illustrate that a private foundation's provision of credit enhancement can qualify as a PRI. The last example demonstrates that a guarantee arrangement may qualify as a PRI. The proposed regulations will be effective on the date they are published as final regulations in the Federal Register. However, taxpayers may rely on the new examples before the proposed regulations are finalized. Reference: PTE §33,230.10 Final Regulations Require Banks to Report Interest Paid to Non-resident Aliens The IRS has finalized regulations that require U.S. banks and other financial institutions to report interest on deposits paid to non-resident aliens (T.D. 9584). The requirement applies to payments to residents of any country having a tax information exchange agreement (TIEA) under which the United States will provide information, as well as receive it. The IRS has also identified countries that have a TIEA with the U.S. (and thus, for which reporting is required) (Rev. Proc. 2012-24, 2012-20 IRB). Comment The regulations have been "extremely controversial," Eric Solomon, co-director, national tax department, Ernst & Young LLP, Washington, D.C., stated. Although the IRS has long contemplated this reporting, it took more decisive action after the Foreign Account Tax Compliance Act (FATCA) was enacted in 2010. The rules are an "important bookend" to FATCA, Solomon said. The reporting requirements will apply to interest payments made on or after January 1, 2013. Interest subject to reporting is interest paid on deposits, including deposits with persons carrying on a banking business, savings institutions, credit unions, securities brokerages, and insurance companies. Comment Although the regulations require reporting, the Tax Code exempts the interest itself from income and is designed to encourage foreigners to deposit funds in the United States. The final regulations eliminate the requirement in 2011 proposed regulations that financial institutions include a statement informing the non-resident alien individual that the information may be furnished to the government of the country where the recipient resides. In addition, a payor or middleman may rely on the permanent residence address provided on a valid Form W-8BEN for purposes of determining the country of residence of a non-resident alien to whom reportable interest is paid, unless the payor or middleman knows or has reason to know that the documentation is unreliable or incorrect. Reporting is only required for non-resident aliens living in countries with a TIEA. The IRS has provided a list of 78 countries that have TIEAs with the Unites States. For administrative purposes, however, a financial institution may elect to report interest paid to all non-resident aliens, rather than having to determine whether the individual lives in a country with an agreement with the United States. The IRS has also provided a list of countries with which it has determined that it is appropriate to have an automatic exchange relationship with respect to the information collected under the regulations. The IRS currently exchanges information automatically with only one country—Canada. The IRS attempted to reassure financial institutions that it will not provide information to countries lacking appropriate safeguards for confidentiality and use. Although the IRS will require information on residents in treaty countries, it will not exchange the information automatically. Even if a TIEA is in effect, the IRS explained that it would not exchange information with a country that is not protecting the confidentiality of the information or is not using the information solely for tax enforcement. Comment The government is trying to get the balance correct, by showing its concern for financial institutions' fear that the information might not be used properly, Solomon said. In connection with FATCA, the IRS is working on an alternative reporting system, under which foreign financial institutions will report information to their own governments, rather than directly to the IRS, and the foreign government will then provide the information to the IRS. Reference: PTE §39,110.10 IRS Official Reminds 990 Filers Not to Include Social Security Numbers Filers of Form 990, Return of Organization Exempt from Income Tax, should not enter Social Security numbers (SSNs) anywhere on the form, Lois Lerner, director, Exempt Organizations (EO), IRS, cautioned at the Representing and Managing Tax-Exempt Organizations Conference in Washington, D.C. The IRS has discovered some Forms 990 with SSNs and cannot redact them before public inspection. Some Forms 990 have been filed by exempt organizations containing the SSNs of individuals apparently affiliated with the organization. In other cases, Forms 990 have included the SSNs of individuals who received a benefit from the organization, such as a scholarship. A recent outside study examined Forms 990 filed between 2001 and 2006, Lerner explained. All Forms 990 are open for public inspection, Lerner said. "The IRS has no authority to redact these Social Security numbers," she added. SSNs of return preparers are also appearing on Forms 990. Return preparers should be using their Preparer Tax Return Identification Number (PTIN) and not their SSN, Lerner reminded practitioners. "The concern here is potential identity theft," Lerner warned. The IRS, the National Taxpayer Advocate, and the Treasury Inspector General for Tax Administration (TIGTA) have cautioned that identity theft is a growing problem. Reference: PTE §33,605.05 Specifications for Preparing and Using Substitute Forms W-2c and W-3c Updated The IRS has issued a procedure with updated requirements for preparing and submitting substitute Forms W-2c, Corrected Wage and Tax Statement, and Forms W-3c, Transmittal of Corrected Wage and Tax Statements (Rev. Proc. 2012-22, 2012-17 IRB 853). Along with instructions on how to obtain the official IRS forms, guidance is provided for filing the forms electronically with the Social Security Administration (SSA), for filing paper copies of substitute red-ink Forms W-2c (Copy A) and W-3c with the SSA, for filing paper copies of substitute black-and-white Forms W-2c (Copy A) and W-3c with the SSA, for furnishing substitute privately-printed Forms W-2c (Copies B, C, and 2) and W-3c to employees, and for obtaining approval of substitute forms by the Office of Management and Budget (OMB). Exhibits are offered to show examples of substitute forms, and instructions are provided regarding the retention of form information. The updated procedure makes the following changes to the previous procedure:
The procedure will be reproduced as the next revision of IRS Pub. 1223, General Rules and Specifications for Substitute Forms W-2c and W-3c. The IRS has issued the 2013 inflation-adjusted amounts for Health Savings Accounts (HSAs) (Rev. Proc. 2012-26, 2012-20 IRB). For calendar year 2013, the annual limitation on deductions for individuals with self-only coverage under a high-deductible health plan (HDHP) is $3,250. The annual limitation on deductions for individuals with family coverage under an HDHP is $6,450. For calendar year 2013, an HDHP is defined as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage. In addition, the limit on out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) under the HDHP may not exceed $6,250 for self-only coverage or $12,500 for family coverage. Reference: PTE §42,515.10 The IRS has finalized regulations under Code Sec. 1248 that provide that gain recognized on the receipt of a distribution of property from a foreign corporation with respect to its stock is gain from the sale or exchange of the corporation's stock for purposes of Code Sec. 1248(a) (T.D. 9585). The final regulations ensure that the earnings and profits of lower-tier foreign subsidiaries described in Code Sec. 1248(c)(2) are taken into account when gain is recognized with respect to stock of a controlled foreign corporation. Code Sec. 1248. The IRS has withdrawn regulations relating to withholding by government entities on payments to persons providing property or services (T.D. 9586; NPRM REG-151687-10). The regulations are withdrawn because Code Sec. 3402(t) was repealed by the 3-Percent Withholding Repeal and Job Creation Act, P.L. 112-56. Code Sec. 3402. The IRS has advised issuers of qualified mortgage bonds and mortgage credit certificates that the nationwide average purchase price of residences in the United States is $214,000 (Rev. Proc. 2012-25, 2012-20 IRB). Also provided are the average area purchase price safe harbors for residences located in the statistical areas of each U.S. state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. Code Sec. 143. The IRS has corrected Rev. Proc. 2011-62, 2011-52 IRB 1032, which provided general rules for filing, and IRS and Social Security Administration (SSA) requirements for reproducing, paper substitutes for Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, for wages paid during the 2011 calendar year (Announcement 2012-17, 2012-18 IRB 876). The dimensions provided for Exhibit-B in the list of exhibits have been clarified. Code Sec. 3501. The IRS is seeking comments on a number of issues regarding employer-sponsored health care plans and reporting of health insurance coverage (Notice 2012-31, 2012-20 IRB; Notice 2012-32, 2012-20 IRB; Notice 2012-33, 2012-20 IRB). Specifically, the IRS is requesting comments on several possible approaches to determining whether an eligible employer-sponsored plan provides minimum value, reporting requirements under Code Sec. 6055, and reporting by applicable large employers that are subject to Code Sec. 4980H. Code Sec. 4980H. The IRS has proposed rules on the disclosure of return information needed to verify the eligibility requirements for health insurance affordability programs (NPRM REG-119632-11). The regulations define certain terms and prescribe certain items of return information in addition to those items prescribed by statute that will be disclosed, upon written request. Code Sec. 6103(l)(21). The use of a subjective intent, totality-of-the-circumstances test to determine the existence of a partnership was proper, the Tax Court determined (Superior Trading, LLC v. Commissioner, Dec. 59,026(M), TC Memo. 2012-110). The court applied the step-transaction doctrine to collapse the steps of the shelter program into a single sale of receivables for money. Code Sec. 707. |
