3105, 2016

FinCEN Proposes New FBAR Rules

By |May 31st, 2016|Resource Library|0 Comments

On March 10, 2016, the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN) published proposed regulations on Reports of Foreign Bank and Financial Accounts (FBAR). If adopted, the proposed rules would make significant changes to the current foreign account reporting requirements. 

In unwelcome news for many taxpayers, the regulations would require that detailed account information be provided on each foreign account for which an FBAR is required, regardless of how many foreign financial accounts the taxpayer must report. Currently, U.S. persons with a financial interest in or signature authority over 25 or more foreign financial accounts need only provide limited account information for each account. FinCEN explained that the rule change was motivated by an information gap caused by the relaxed reporting rule:               
the provisions limiting information reported […]

3105, 2016

District Court Addresses Treaty Benefits Case Involving Claim of IRS Abuse of Discretion

By |May 31st, 2016|Resource Library|0 Comments

In a case involving unique tax treaty benefit issues, Starr International Co. is challenging the application of a reduced withholding rate under the Switzerland – U.S. income tax treaty. The company is a Swiss-domiciled company that received dividends from a United States company for which withholding tax applied.

The U.S District Court for the District of Columbia heard this case of first impression as Starr International claimed the withholding under the treaty on dividends paid with respect to its 2007 tax year should have been $38 million less than the $57 million amount withheld and subsequently allowed by the IRS.

Under many U.S. income tax treaties in force, taxpayers may only be allowed the benefits of the treaty if the Limitation on Benefits (LOB) criteria is met. Some treaties, including the Swiss-U.S. treaty in question, […]

3105, 2016

Congress Once Again Questioning Large University Endowments

By |May 31st, 2016|Resource Library|0 Comments

In February, the congressional tax-writing committees sent letters to certain colleges and universities with large endowments of more than $1 billion. The recipients of these letters included, among others, Amherst, Harvard, MIT, SMU, Princeton and Yale. The committees’ letters stated they were conducting additional oversight of how colleges and universities are using endowment assets to fulfill their charitable and educational purposes, and to oversee the numerous tax preferences that they enjoy. The committees’ concern with these endowments is the cost of tuition continues to increase faster than inflation, while the endowments and the earnings on their investment are tax-exempt.

The letters were authored by Chairman Hatch, Chairman Brady, and Chairman Roskam, of the Senate Finance Committee, House Ways and Means Committee, and the Ways and Means Oversight Subcommittee, respectively. The schools received a 13 question letter […]

3105, 2016

IRS Seeks Millions in Taxes for Private Foundation’s Failure to Meet Minimum Distribution Requirements

By |May 31st, 2016|Resource Library|0 Comments

In a recently filed case in the United States Tax Court, the Estes Family Educational and Charitable Foundation, a private foundation, is challenging IRC § 4942 excise tax deficiencies stemming from an alleged failure to satisfy its minimum distribution requirements. The Estes Foundation was assessed nearly $9 million in excise taxes, including $4.1 million relating to the 30 percent excise tax for failing to make sufficient distributions for tax years 2010-2013, and $4.8 million relating to the 100 percent excise tax for failing to correct the alleged failures by the end of 2015.

Under IRC § 4942, a private non-operating foundation generally must pay out each year an amount equal to 5 percent of its net investment assets in qualifying distributions. Qualifying distributions generally include grants to qualified donees, reasonable and necessary administrative costs to make the grants, […]

3105, 2016

Court Denies Conservation Easement Deduction for Defective Contemporary Written Acknowledgement

By |May 31st, 2016|Resource Library|0 Comments

By Steven Miller, former IRS Acting Commissioner and alliantgroup National Director of Tax

On March 23, 2016, the Tax Court issued a decision upholding the IRS’s disallowance of a charitable deduction for a contribution of a conservation easement based on the taxpayer’s failure to satisfy the strict substantiation requirements of section 170(f)(8). In French v. Comm’r of Internal Revenue, T.C.M. (RIA) 2016-053 (T.C. 2016), the taxpayer owned a portion of a parcel of property in Montana and donated a conservation easement on this property to the Montana Land Reliance in 2005, claiming a deduction of $350,971 for the charitable donation of his proportional interest in the conservation easement. He deducted $56,796 for the 2005 tax year and carried the remainder forward to claim deductions for 2006 through 2008. Only the 2006 through 2008 tax years were included in the litigation.  […]

3105, 2016

IRS Extends Due Date for New Estate Basis Reporting to June 30, 2016

By |May 31st, 2016|Resource Library|0 Comments

During our last edition of the Washington Insider, we discussed the new estate basis regulations, which require executors of estates to furnish Forms 8971 under IRC § 6035 to the IRS and specified beneficiaries. Executors are now required to report on Form 8971, the basis of all property to each beneficiary, which is based on the property’s fair market value on the date of the decedent’s death.  Previously, the due date for filing the forms had been extended to March 31, 2016.

However, shortly before this March 31 deadline, the IRS released Notice 2016-27, once again delaying the due date for providing such information to June 30, 2016. The original due date for executors to furnish basis information to beneficiaries and the IRS was delayed by Notice 2016-19 from February 29, 2016, to March […]

3105, 2016

New Jersey Imposes Two-Year Exemption Freeze on Nonprofit Hospital Property Taxes

By |May 31st, 2016|Resource Library|0 Comments

New Jersey Governor Chris Christie has announced an agreement that places a two-year delay on the imposition of property taxes on New Jersey’s nonprofit hospitals. The agreement preserves the real property tax exemption for New Jersey’s sixty-two (62) nonprofit hospitals until January 1, 2018. In the meantime, the governor will be working with legislators and other stakeholders to try to resolve the exemption issue, including through the formation of a Property Tax Exemption Study Commission to conduct a comprehensive study of exemptions for all nonprofits in the state.

The issue flared up last year when the New Jersey Tax Court revoked the property tax exemption of a nonprofit hospital in Atlantic Health Systems v. Morristown, finding that the hospital operated like a for-profit hospital, largely on the basis that it entangled its activities and operations with those […]

3105, 2016

Tax Court Imposes Prohibited Transaction Penalties on IRA Loan Guarantees

By |May 31st, 2016|Resource Library|0 Comments

On March 29, 2016, the United States Tax Court issued a decision in Thiessen v. Commissioner that affects business owners and other individuals who use their IRAs to finance investments. The court held that the taxpayers engaged in a prohibited transaction that resulted in a taxable distribution from their IRAs and a 10 percent addition to tax for a premature distribution.

The Facts

The taxpayers engaged in a series of transactions to acquire an unincorporated business that specialized in the design, fabrication and installation of metal products. Upon the advice of a broker, they rolled their qualified retirement plan accounts into newly created self-directed IRAs, caused the IRAs to buy stock of a newly formed C corporation and caused the corporation to purchase the assets of the unincorporated business.   

In this series of transactions, […]

3105, 2016

Court Uses Post-Death Events to Value Business Interest Charitable Deduction in Estate Tax Case

By |May 31st, 2016|Resource Library|0 Comments

In a recent Tax Court opinion, Estate of Victoria E. Dieringer et al. v. Commissioner, 146 T.C. No. 8 (2016), the court upheld an estate tax deficiency of $4.1 million and an accuracy-related penalty of $824,943 in a charitable deduction case. The court determined that actions taken before the distribution of the assets by the estate, but after the decedent’s death, changed the nature of the assets and reduced the value of the property that was eventually transferred to the charitable foundation.

The Facts

The estate claimed a charitable deduction for estate tax purposes based on an appraised date-of-death value of all of the shares intended by the decedent to be transferred to the foundation. However, not all the shares were distributed to the charity. Instead, all of the decedent’s voting shares and most […]

3105, 2016

District Court Finds Private Equity Funds Liable for Portfolio Company’s Withdrawal Liability

By |May 31st, 2016|Resource Library|0 Comments

In a recent decision, a Massachusetts Federal District Court judge held two private equity funds, Sun Capital Partners III and Sun Capital Partners IV (the Funds), jointly and severally liable for a $4.5 million multiemployer pension plan withdrawal liability incurred by a commonly owned portfolio company, Scott Brass, Inc. (SBI). The court supported its decision by finding that the Funds were engaged in a trade or business under common control.

In its analysis of whether the Funds were engaged in a trade or business, the court applied a facts-and-circumstances test to determine whether the funds’ activities rose beyond that of mere “passive investor who not engage in management activities.” Specifically, the court emphasized the following factors in support of its conclusion: the Funds invested in portfolio companies as a profit-making activity; the Funds actively managed and […]

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