AICPA Tax Division
Comments on the
2007-2008 Guidance Priority List (Notice 2007-41)
May 31, 2007
Corporations and Shareholders Taxation Technical Resource Panel
(Andrew
Cordonnier, Chair, (202) 521-1502, andy.cordonnier@gt.com; or George L. White, AICPA
Staff Liaison, (202) 434-9268, gwhite@aicpa.org) NOTE: Comments are listed in priority
order.
1.
Finalization of the “No-Net-Value” regulations.
2.
Guidance is needed regarding the ultimate recovery of capitalized transaction costs
(e.g., bankruptcy costs, IPO costs, etc.).
3.
Finalization of regulations issued under section 368(a)(1)(F), relating to a mere
change in identity, form, or place of organization of one corporation.
4.
Guidance is needed on the application of section 382, including—
5.

The application of sections 382(l)(5) and (6) to consolidated groups;

The scope of, and exceptions to, section 382(l)(1); and

The application of section 382(h)(6) and/or clarification of the application of
Notice 2003-65.

The application of section 382(l)(3)(C) regarding relative fluctuations in value.
Guidance is needed under section 355, including—

Satisfaction of business expansion under section 355(b) through stock and asset
acquisitions; and

Finalization of regulations regarding predecessors and successors under section
355(e).
6.
Guidance is needed to conform the diversification standards of section 351(e) to
those of section 368(a)(2)(F).
7.
Finalization of regulations issued under section 1502 regarding liquidations under
section 332 into multiple members.
Employee Benefits Taxation Technical Resource Panel (Sandy Wheeler, Chair, (202)
414-1856, Sandra.ormsby.wheeler@us.pwc.com; or Lisa A. Winton, AICPA Staff Liaison,
(202) 434-9234, lwinton@aicpa.org) NOTE: Comments are listed in priority order. The
AICPA recognizes that the IRS has an extensive list of items in the benefits area requiring
guidance and we agree that those items should be addressed first. However, we also
believe the following items should be addressed at a later date.
1.
Guidance under section 1341 specifically focused on the tax treatment of amounts
not received that were previously included in income under sections 402(b) or
409A.
2.
Guidance regarding the tax treatment of bonuses paid to employee S corporation
shareholders when an ESOP owns only a portion of the S corporation.
3.
Guidance is needed on how to qualify for self-correction when moving from a
document of one service provider to another service provider and changes were
unintentionally made to the document during this process.
Operational
inconsistencies need to be addressed.
4.
Guidance is needed on 401(k)/(m) testing for mergers and acquisitions occurring
during a plan year; and clarification of the successor employer and severance of
employment concepts.
5.
Final regulations are needed on the section 408(q) requirement to establish a
separate trust for the deemed IRA contributions.
Exempt Organizations Technical Resource Panel (Mary Rauschenberg, Chair, (312)
486-9544, mrauschenberg@deloitte.com; or George White, AICPA Staff Liaison, (202)
434-9268, gwhite@aicpa.org) NOTE: Comments are listed in priority order.
1.
Guidance is needed under section 512 for a simplified and uniform method of cost
allocation for large organizations to use for UBIT activities.
2.
Additional guidance is needed under section 512 to determine how to apply rules on
UBIT, lobbying expenditures and political intervention to Internet activities of taxexempt organizations.
3.
Guidance is needed to formulate established methods under voluntary compliance
programs for exempt organizations to come in and correct improper positions taken
with regard to IRS forms and procedures.
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Individual Taxation Technical Resource Panel (Lorraine D. Evans, Chair, (916) 6858775, lorraine@motesevans.com; or Lisa A. Winton, AICPA Technical Manager, (202)
434-9234, lwinton@aicpa.org) NOTE: Comments are listed in priority order.
1.
Guidance is needed regarding the proper handling of the exclusion of gain on sale of
personal residence as part of an installment sale and as part of a like kind exchange
where a personal residence is both a personal residence and concurrently has a
business use, such as an office in the home, day care segments and/or held for
investment such as a portion of a home or rooms held for rent.
2.
Section 163(h)(4)(A) generates uncertainty about how to define a qualified
residence or a second residence in the context of divorce. Does the use by the
former spouse or children qualify as use by the taxpayer as a residence? Does the
taxpayer responsible for the mortgage need to own the underlying property before
the interest is deductible? For example, the husband may transfer ownership of the
residence to the wife but remain responsible for the mortgage. Is the interest
deductible? Temporary reg. section 1.163-10T(o)(1) appears to not require 100
percent ownership of the residence, but requires the taxpayer's interest in the
dwelling be security for the entire mortgage.
3.
Guidance is needed on how to coordinate a tuition payment and the receipt of a
distribution from a Section 529 Plan. Specifically, if a taxpayer makes a tuition
payment in 9/06, but receives the 529 distribution in 1/07 – assuming no other
tuition payments are made – is the 2007 distribution taxable? Section 529(c)(3)
does not address the question, however IRS Publication 970 states that the tuition
payment and the distribution must be in the same year.
4.
Guidance is needed on using deferred vacation home losses to offset gains on the
sale of the vacation property under section 280A. Section 280A limits the current
deductibility of expenses associated with vacation home rentals; however, excess
deductions may be carried over to succeeding years. Guidance must resolve the
question of whether gain from the sale of the vacation property is considered gross
rental income that would allow the excess deductions to be taken in the year of the
sale.
5.
Guidance is needed to assist taxpayers in determining the qualifications required in
order to file as a “trader” as opposed to an “investor.” No “objective” tests
currently exist to determine the qualification of a taxpayer engaged in the business
as a trader in securities (which provides the ability to report trading related expenses
as ordinary business expenses). Instead, the determination for this qualification is
dependent on existing tax court cases which are ambiguous and leave room for
interpretation.
6.
Guidance is needed on reverse section 1031 exchanges to include the proper
treatment of expenses paid by the taxpayer in connection with operating the activity
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while leasing the property from the accommodation titleholder. These expenses
may include loan closing costs paid by the taxpayer on a loan for which the
accommodation titleholder is responsible.
International Taxation Technical Resource Panel (Paul Schmidt, Chair, (202) 861-1760,
Pschmidt@bakerlaw.com; or Eileen R. Sherr, AICPA Technical Manager, (202) 434-9256,
esherr@aicpa.org) NOTE: Under each numbered category, the first three bulleted items
are the most important.
1.
Guidance is needed in the following areas related to Subpart F/Deferral:

Provide regulations under section 954(h) on the subpart F exception for active
financial services income, especially with regard to the application of the
substantial activity requirement of section 954(h)(3)(C) and the “substantially
all the activities” requirement of section 954(h)(3)(A)(ii).

Provide regulations under section 954(c) relating to the active rent or royalty
exception. Also, consistent with the legislative history of the 2004 American
Jobs Creation Act and Notice 2006-48, issue regulations providing exceptions
from income inclusions under sections 956 and 367(a) for aircraft and vessel
leasing that is compliant with section 954(c)(2)(A).

Finalize the proposed regulations under section 959 regarding exclusions from
income of previously taxed earnings.

Provide guidance under section 961(c) regarding basis adjustments to the stock
of a CFC held through partnerships.

Finalize the proposed section 898 regulations on conforming year-ends of
certain foreign corporations to the year-ends of their U.S. shareholders.

Provide guidance to explain the application of section 304(b)(5).

Provide more complete and definitive guidance under the PFIC regulations. In
particular, (1) update the PFIC regulations to take into account the enactment of
section 1297(e), which eliminates the overlap of the PFIC and Subpart F
regimes under certain circumstances (including the application of section
1297(e) to a PFIC owned by a U.S. partnership that has U.S. partners), (2)
provide guidance under section 1297(c) regarding the 25 percent ownership
look-through rule and its interaction with the section 1297(b)(2)(C) related party
income rules, and (3) provide guidance on the application of section
1297(b)(1)’s definition of passive income and in particular on the interaction of
section 954(h) and (i) with section 1297(b)(2).
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2.
3.

Issue regulations pursuant to Notice 2007-13 regarding the substantial assistance
rules for foreign base company services income.

Provide guidance with respect to the reg. section 1.954-2(b)(4) substantial assets
test relevant to qualification under the same country exception for interest and
dividends, as applied to (i) stock in non-CFC foreign corporations and (ii) banks
and insurance companies.
Guidance is needed in the following areas related to inbound transactions:

Reissue proposed section 163(j) “earnings stripping” regulations, taking into
account taxpayer comments and developments since the original issuance of the
proposed regulations.

Provide guidance under section 267(a)(3)(B) regarding the timing of deduction
for payments to CFCs and PFICs and provide exceptions for appropriate
transactions.

Provide guidance on the application of temp. reg. section 1.897-6T and section
1445 to nonrecognition transactions involving transfers of USRPIs to
partnerships, and dispositions of interests in partnerships that directly and
indirectly hold USRPIs.

Provide guidance regarding new Form 8804, particularly whether a partnership
that must withhold under section 1446 with respect to effectively connected
taxable income allocable to foreign partners is entitled to take into account
otherwise allowable deductions in the relevant taxable income computations.

Following the retroactive withdrawal of reg. section 1.1441-1(b)(7)(iii) by T.D.
9323, guidance on liability of a withholding agent for interest with respect to
withholding under section 1445 or section 1446, if the withholding agent does
not withhold with respect to a foreign person that has no U.S. tax liability, or
that has satisfied its U.S. tax liability.
Guidance is needed in the following areas related to outbound transactions:

Provide guidance on the treatment of gain recognition agreements (GRAs) under
section 367(a) upon a section 355 distribution (including treatment of foreign
transferors and foreign transferees). [Note: See AICPA comments to IRS on
Notice 2005-74, Section 3.02 regarding the effect of certain exchanges on gain
recognition agreements under section 367(a) submitted on February 21, 2006,
available at:
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http://tax.aicpa.org/Resources/International/Regulation+and+Administration/AI
CPA+Comments+on+Notice+200574+on+the+Effect+of+Exchanges+on+Gain+Recognition+Agreements.htm]

Issue regulations under section 367(a)(5).

Issue further guidance on the application of new section 7874 relating to
inversion transactions, including the following issues: (1) whether, in applying
the ownership test to former shareholders of the acquired U.S. entity, the term
“shareholder” includes indirect ownership or only direct ownership; (2) the
requirement that such acquisition be pursuant to a plan or a series of related
transactions; (3) the treatment of stock sold in a public offering that is related to
the acquisition, including defining what constitutes a public offering; and (4)
with respect to the special rule in section 7874(c)(5) for related partnerships in
which all commonly controlled partnerships are aggregated, clarify (i) whether
the rule applies to both domestic and foreign partnerships and (ii) for which
purposes aggregation is required.

Finalize the proposed regulations under section 1248 regarding dispositions of
certain foreign corporations by foreign partnerships with U.S. partners; and
provide guidance under section 1248 regarding dispositions by U.S. persons of
foreign partnership interests where the foreign partnership owns stock in a
controlled foreign corporation and the U.S. partner is a United States
shareholder with respect to the controlled foreign corporation.

Issue updated regulations under section 367(d), reflecting changes to the statute
since their original issuance. We also suggest interim guidance be issued on the
changes to section 367(d) under Section 406(a) of the American Jobs Creation
Act of 2004, including the retroactive application of that provision.

Issue guidance under new section 332(d) regarding its interaction with section
337.

Finalize the proposed section 987 regulations relating to foreign currency
translation gains and losses with respect to branch transactions (taking into
account public comments with respect to the proposed regulations). [Note: See
AICPA comments to IRS submitted on March 29, 2007, available at:
http://tax.aicpa.org/Resources/International/Regulation+and+Administration/AI
CPA+Comments+on+Foreign+Currency+Transaction+Regulations.htm]

Issue guidance under section 1248(f)(2) addressing certain distributions of stock
of foreign corporations to domestic corporations.
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
4.
5.
Issue guidance relating to the carryover of tax attributes in section 355
transactions. The IRS has issued proposed regulations under section 367(b)
addressing these issues (i.e., reg. section 1.367(b)-8).
Guidance is needed regarding foreign tax credits, in particular:

Issue guidance on recharacterization of overall domestic losses under section
904(g), including guidance with respect to the interaction with section 904(f)
and ordering rules.

The section 904(f) regulations relating to overall foreign losses should be
revised to replace the outdated 1987 regulations and Notice 89-3.

Repropose the proposed regulations providing guidance under section 901 on
the allocation of foreign taxes in circumstances involving (i) hybrid entities and
the technical taxpayer rule (issued on August 3, 2006) and (ii) noncompulsory
foreign taxes paid under foreign consolidated regimes or certain structured
passive investment arrangements (issued on March 29, 2007) after public
comments are considered on the current proposed regulations.

Issue guidance under new section 904(f)(3)(D), relating to the application of the
overall foreign loss rules to certain dispositions of CFC stock, and, in particular,
section 368(a)(1)(B) reorganizations, as well as relating to the provision’s
interaction with section 355.

Issue guidance relating to the application of the overall foreign loss rules to
certain dispositions involving partnerships.

Guidance is needed under section 905(c) regarding taxes paid after a liquidation,
stock sale or section 338 election.

More complete guidance regarding the application of reg. section 1.865-1(a)(2)
and reg. section 1.865-2(a)(3) under which losses are allocated to reduce foreign
source income if gain on the sale of the property (including stock) would have
been taxable by a foreign country and the highest marginal rate of tax imposed
on such gains in the foreign country is at least 10 percent.
Guidance is needed in the following additional areas:

Guidance with respect to the characterization of guarantee fees under applicable
U.S. international tax principles, including sourcing for foreign tax credit
purposes.

Finalize the temporary and proposed regulations under section 482 governing
the arm’s length value of intercompany services.
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
Clarify and relax the double reporting rules under the section 1461 regulations
and the treaty-based reporting requirements under section 6114.

Provide guidance regarding the implementation of the worldwide apportionment
method of allocating interest expense that taxpayers may choose to elect for tax
years beginning after December 31, 2008.

Provide guidance regarding the treatment of domestic hybrid disregarded
entities owned by foreign persons for treaty purposes, including the
determination of profits attributable to a permanent establishment and
application of the branch profits tax.
IRS Practice and Procedures Committee (James E. Brennan, Chair, (212) 773-3209,
james.brennan@ey.com; or Benson S. Goldstein, AICPA Technical Manager, (202) 4349279, bgoldstein@aicpa.org) NOTE: Comments are listed in priority order.
1.
On January 11, 2005, the IRS issued temporary and proposed regulations (REG130671-04) regarding requirements for electronically filing (1) income tax returns
for large corporations and (2) annual information returns for certain exempt
organizations, pursuant to sections 6011, 6033, and 6037 of the Internal Revenue
Code. We recommend that these regulations be finalized, and guidance issued
therein to state that:
To the extent a corporation, exempt organization, or other entity (otherwise
subject to the e-file mandate of these temporary and proposed regulations)
determines that it should amend an income tax return or annual information
return already filed for a particular taxable year, such amended return should
not be required to be e-filed or subject to the scope of REG-130671-04.
2.
In general, Internal Revenue Code sections 6011, 6033, and 6037 provide the IRS
with the authority to setup and administer a program to process electronically filed
tax, information, and other returns by taxpayers. Current IRS guidance generally
states that only permanent residents and citizens of the U.S. can effectively qualify
for an Electronic Filing Identification Number (EFIN) or a Preparer Tax
Identification Number (PTIN). (See Publication 3112, IRS e-file Application and
Participation.)
For purposes of maximizing the growth and utilization rate of the IRS’s electronic
filing program, we recommend for Treasury to issue regulations permitting nonresident aliens and non-U.S. citizens to qualify for EFINs and PTINs under
specified circumstances.
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3.
Internal Revenue Code sections 6159 and 7122 generally authorize the IRS to enter
into installment agreements and offers in compromise with taxpayers who are
having financial (or other) difficulties repaying tax liabilities otherwise owed to the
federal government. We recommend that Treasury issue regulations or other
guidance to facilitate greater utilization and acceptance by the IRS of installment
agreements (including partial pay installment agreements) and offers in compromise
submitted by taxpayers to address tax debts.
Partnership Taxation Technical Resource Panel (Troy K. Lewis, Chair, (801) 550-2622,
tlewis@sisna.com; or Marc A. Hyman, AICPA Technical Manager, (202) 434-9231,
mhyman@aicpa.org.) NOTE: Comments are listed in priority order.
1.
Regulations are needed with respect to section 704(c)(1)(C). Specifically, where a
partner has contributed property with a built-in loss, the regulations should address
the impact of the transfer or liquidation of a contributing partner’s interest on the
basis of the partnership’s property with respect to any successor partner, including
transfers that are subject to section 381 and other nonrecognition transfers. For
example, assume that Partnership A and Partnership B merge such that Partnership
A is treated as having contributed its assets to Partnership B in exchange for an
interest in Partnership B and then distributed such interests in liquidation of
Partnership A. If the assets of Partnership B include an asset with a built-in loss, is
the loss eliminated as a result of the merger?
2.
Guidance is needed on the treatment of limited liability company members under
section 1402(a)(13).
3.
Guidance is requested on the impact and applicability of section 409A to various
nonqualified deferred compensation arrangements between partnerships and their
partners.
4.
Guidance is needed with respect to the application of Rev. Rul. 99-6. Specifically,
the guidance should address the situations to which Rev. Rul. 99-6 applies and
whether or not the liquidation of the partnership can have tax consequences. For
example, where a partnership holds section 704(c) property, can the liquidation of
the partnership result in the application of section 704(c)(1)(B) or section 737? In
addition, where a partnership has an obligation to the person acquiring the interest
in the partnership, does the hypothetical liquidation of the partnership under Rev.
Rul. 99-6 result in the deemed repayment of the obligation with partnership
property such that gain or loss may be recognized.
5.
Guidance is needed with respect to Section 8215 of H.R. 2206, the new “family
business tax simplification” election. Specifically, transition rules are needed for
spouses currently filing partnership returns, the consequences under Subchapter K
of making such election, and the manner in which such election is made.
9
6.
Guidance on the methodology of applying section 743 for partnerships using the
special aggregation rule for securities partnerships under reg. section 1.704-3(e).
Guidance would be expected to include a similar aggregation rule for allocating the
section 743 adjustment under section 755 and a methodology for determining when
the section 743 adjustment is taken into account.
7.
Guidance is needed to expand the ability of a securities partnership to aggregate
gains and losses for purposes of making reverse section 704(c) allocations under
reg. section 1.704-3(e)(3).
8.
Guidance is requested on the treatment of partnership level section 481 adjustments.
Several unresolved issues include guidance on (1) allocation of the 481 adjustment
where there has been a change in ownership, (2) the impact of the 481 adjustment
on a section 754 basis adjustment, and (3) the treatment of a 481 adjustment on a
section 708(b)(1)(B) termination.
9.
Guidance is needed to address the revaluation of partnership assets where the assets
were either contributed to the partnership or previously revalued by the partnership.
This guidance should include (1) how the multiple layers under section 704(c) are
maintained; (2) the impact on minimum gain calculations under section 704(b); and
(3) the impact on nonrecourse debt allocations under section 752.
10.
Clarification is needed under section 42 regarding what items (other than impact
fees) are included in the eligible low income housing credit basis, such as tap fees,
offsite costs, construction loan fees and bond costs.
S Corporation Taxation Technical Resource Panel (Laura Howell-Smith, Chair, (202)
220-2076, lhowellsmith@deloitte.com; or Marc A. Hyman, AICPA Technical Manager,
(202) 434-9231, mhyman@aicpa.org) NOTE: Comments are listed in priority order.
1.
Guidance is needed for situations in which an S corporation converts to a
partnership or LLC that elects corporate taxation. This can occur in some states in a
seamless transaction in which a filing with the secretary of state effectuates the
conversion. In other situations it will require the creation of another entity on a
temporary basis that will disappear when the transaction is complete. In either case,
this should be treated as an F reorganization and the entity should still be an S
corporation. Clarification is needed to state that conclusion and also to determine
whether a new federal ID number is needed, and if not, what happens to an ID
number that may have been applied for in the case of the temporary entity.
2.
Guidance is needed regarding the deductibility under section 162(l) of health
insurance premiums paid by and pursuant to a resolution adopted by the Board of
Directors of the corporation on behalf of an S corporation shareholder when the
10
insurance policy under which the shareholder is covered is in the name of the
shareholder rather than the corporation due to limitations under state law; insurance
company policy, or cost-benefit analysis.
3.
Guidance is needed as to when, for alternative minimum tax purposes, S
corporations will be deemed to have corporate attributes.
4.
Guidance is needed regarding the inability to utilize certain suspended passive
activity losses upon redemption. Section 469(g) generally allows for the utilization
of all suspended passive activity losses that have been carried forward when a
taxpayer disposes in a taxable transaction of his entire interest in a passive activity.
This rule does not apply, however, when the sale is to a related party described in
sections 267(b) and 707(b)(1). When the related party exception applies, the loss is
deferred until the party acquiring such interest in the passive activity disposes of the
interest to a party that is unrelated to the initial selling taxpayer. In the case of a
redemption of stock, the second disposition can never be achieved because the stock
redeemed no longer exists for federal income tax purposes. It is not possible to
trace the redeemed stock to a subsequent disposition.
The legislative history to the provision does not appear to contemplate this situation.
Although the statute treats redemptions of corporations differently than redemptions
of partnership interests with regard to the ability to recognize realized losses on
redemption (see section 707(b)(1) allowing for losses on redemption of partnership
interests; and see section 267(b) and Revenue Ruling 57-387 for disallowance of
loss on redemption of corporate stock), we believe it appropriate that all suspended
losses be allowable upon a complete redemption of interests in a pass through
entity. Suspended passive losses do not result from a sale or exchange of property
between related parties, but rather from true economic losses. The sale transaction
solely governs the timing of taking the loss into account. If such losses were not
allowed upon a complete redemption in a pass through entity, true economic losses
would never be recognized as the provisions of section 469(g) could never be
satisfied.
5.
Clarification is needed about who should sign the final return of a corporation that is
the target of a section 338(h)(10) acquisition by an S corporation.
6.
Clarification is needed regarding the ordering rule for adjustments to AAA when
ordinary and redemption distributions are made in the same year and an ordinary
distribution occurs after the redemption distribution. Under reg. section 1.13682(d)(1)(ii), AAA is adjusted first for ordinary distributions and then for
redemptions. The regulations provide an example where the redemption occurs
later in the year than the ordinary distribution, but does not provide an example
where the redemption occurs prior to the ordinary distribution. Since the
redemption distribution is based on the AAA amount as of the date of the
redemption, the rule is not clear in the case of a post-redemption ordinary
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distribution. The regulation simply says to adjust first for ordinary distributions but
does not make a distinction for those ordinary distributions that are before or after a
redemption. One could interpret the rule either way. Reducing the AAA balance
for all ordinary distributions regardless of the timing relative to the redemption
provides the best answer in most circumstances. Since a complete redemption is a
sale or exchange transaction, the presence of AAA is irrelevant for purposes of
determining the shareholder’s gain or loss on the redemption. Allocating more AAA
to redemptions by ignoring post redemption distributions doesn’t benefit the
redeemed shareholder while it leaves less AAA for the post redemption distribution
to be recovered tax free by the recipient shareholders.
7.
Guidance is needed on how net unrealized built-in gain (NUBIG) is allocated in a
section 355 transaction involving a distributing S corporation.
8.
Clarification is needed as to when transitory ownership of S corporation stock will
be ignored for built-in gains tax purposes. For example, in Rev. Rul. 2004-59 under
a state law formless conversion statute, the events deemed to occur include the
transitory ownership of the corporation’s stock by a partnership (a disqualified
shareholder). If the corporation elected S corporation status and the transitory
ownership is not ignored, there might be a section 1374 built-in gains tax problem
for the entity if it has appreciated assets.
9.
Guidance is needed regarding the coordination of the Qsub and the consolidated
return regulations with respect to the timing of Qsub elections. Under reg. section
1.1361-4(b)(3), if an S corporation does not own 100 percent of the stock of the
subsidiary on the day before the Qsub election is effective, the liquidation described
in reg. section 1.1361-4(a)(2) occurs immediately after the time at which the S
corporation first owns 100 percent of the stock. When an S corporation acquires a
subsidiary from a consolidated group, the timing of the Qsub election may not
reconcile with the consolidated return regulations. Regulation section 1.150276(b)(1)(ii) states that the departing member is included in the consolidated group
through the end of the day on which it leaves. A departing member, for example,
might account for inventory under the LIFO method. It is not clear in this case who
recognizes the LIFO recapture. The consolidated regulations have a “next day” rule
that generally allocates items that occur on the day of deconsolidation to the next
day if they are more properly attributable to activities occurring after the subsidiary
has left the group. In the case of a Qsub election, there is no “next day” of the
departing member to which items may be allocated. Accordingly, the recapture of
the LIFO reserve would appear to be recognized on the selling consolidated group’s
return. However, if the S corporation is deemed to acquire the stock of the member
after taking into account the consolidated return rule which says the subsidiary
remains a member through the day of deconsolidation, then the liquidation might
happen on a separate one second return immediately after the target is deemed to
leave the consolidated group under reg. section 1.1502-76(b)(1)(ii). Guidance
should be issued that (1) addresses the interplay between the consolidated return and
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the Qsub regulations regarding the timing of the deemed liquidation when a member
of a consolidated group is acquired by an S corporation and a Qsub election is made
for the former member and (2) specifies on which return the LIFO recapture amount
is recognized.
10.
Guidance is needed to confirm that an S corporation can simultaneously make both
pro rata distributions according to current stock ownership and other distributions
that meet the varying interest rule of reg. section 1.1361-1(l)(2)(iv) without creating
a second class of stock.
11.
We recommend that the guidance from PLR 200308035 be incorporated into a
revenue ruling. Specifically, guidance is requested concerning whether a second
class of stock is created by an S corporation’s pro rata distributions made to pay: (1)
taxes in year one; (2) redemptions in year two; (3) additional taxes in year three for
an amendment of its year one tax return; and (4) subsequent distributions to pay
additional year one taxes.
Tax Accounting Technical Resource Panel (Christine Turgeon, Chair, at (646) 4711660, christine.turgeon@us.pwc.com; or George L. White, AICPA Technical Manager,
(202) 434-9268, gwhite@aicpa.org) NOTE: Comments are listed in code section order.
1.
Provide guidance under sections 162 and 263(a) regarding the documentation
requirements to support a deduction for success-based fees.
2.
Provide a fifteen year safe harbor amortization rule under section 167 for all
capitalized transaction costs.
3.
Provide guidance that royalties contingent on sales may be allocated entirely to cost
of goods sold under a section 263A facts and circumstances allocation method.
4.
Reconsider Rev. Rul. 2005-42 regarding treatment of environmental remediation
expenditures under section 263A.
5.
Reconsider Rev. Rul. 70-564 to allow the carryover of LIFO layers following
sections 351 and 721 transactions provided the new entity chooses to use a LIFO
method.
6.
Provide guidance on the terms and conditions for method changes made pursuant to
section 381, including whether LIFO changes should be made on a cut-off basis.
7.
Modify Rev. Proc. 2006-45 to clarify there is not a financial statement conformity
requirement for controlled foreign corporations changing their accounting periods
under section 442 to elect a one-month lag as permitted under section 898.
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8.
Modify accounting method procedural guidance to allow taxpayers under
examination more opportunity to file method changes, to expand the method
changes eligible for automatic consent, and to permit taxpayers to elect to take
positive section 481(a) adjustments into account entirely in the year of change.
9.
Allow taxpayers to obtain automatic consent to change the treatment of certain
transactions as sales instead of as leases, or vice versa, and to implement the change
with a section 481(a) adjustment and audit protection in all cases, not only in
“unusual and compelling” circumstances. Such method changes could be granted
with only “bare consent” where the IRS National Office does not rule as to the
proper characterization of the transactions as sales or leases.
10.
Provide guidance to address the application of section 453A to contingent payment
installment sales.
11.
Provide guidance addressing circumstances under which the all events test is
satisfied with respect to incentive compensation.
12.
Reconsider Rev. Ruls. 71-234 and 77-480 to allow use of the rolling average cost of
inventory to the extent it approximates actual cost.
13.
Provide guidance on the tax treatment of vendor allowances under section 471.
14.
Provide guidance on whether a change to the Inventory Price Index Computation
(IPIC) method of reg. section 1.472-8(e)(3) includes an item definition change.
15.
Provide guidance to clarify the scope of the IPIC pooling rules, including whether
purchased for resale items may be contained in the same pool as manufactured
items and whether a LIFO election must be expanded to include all items within an
IPIC pool.
16.
Re-propose regulations relating to corporate estimated taxes under section 6655.
Tax Practice Responsibilities Committee (Eve Elgin, Chair, (202) 533-4268,
eelgin@kpmg.com; or Jean E. Trompeter, AICPA Technical Manager, (202) 434-9219,
jtrompeter@aicpa.org) NOTE: Comments are not listed in any priority order.
1.
Guidance is needed under Circular 230’s covered opinion standards (Section 10.35),
including –

Consideration of a principle-based approach within the standards to better
support Circular 230’s essential role and to alleviate the unintended
consequences that have occurred.
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
Consideration of substantial changes to Circular 230 written tax advice
standards to remove current impediments on delivery of tax advice to clients and
on the role of tax advice in the administration of the tax system.

Additional written guidance on the appropriate application of the aspirational
standards of Section 10.33 and the binding standards of Section 10.35 to clarify
the appropriate level of due diligence in situations where either set of rules
could apply.
[Note: See AICPA comments on Circular 230’s covered opinion standards,
submitted on March 6, 2006, available at:
http://tax.aicpa.org/Resources/Professional+Standards+and+Ethics/Treasury+Depar
tment+Circular+No.+230+Covered+Opinion+Standards.htm.]
2.
Guidance on Circular 230’s provisions regarding general practice matters and
disciplinary proceedings, discussed in proposed regulations issued on February 8,
2006, should be finalized, taking into account the AICPA comments submitted on
May 9, 2006.
[Note: See AICPA comments on these matters, submitted on May 9, 2006,
available at:
http://tax.aicpa.org/Resources/Professional+Standards+and+Ethics/Treasury+Depar
tment+Circular+No.+230+/AICPA+Outlines+Concerns+About+Latest+Circulation
+230+Amendments.htm]
3.
Additional guidance regarding the imposition of monetary penalties under Circular
230 as amended by Section 822 of the American Jobs Creation Act of 2004 should
be issued. The AICPA is currently developing comments on Notice 2007-39,
dealing with this issue. Those comments will be submitted to Treasury and the IRS
by the August 13, 2007 due date.
4.
Guidance regarding “transactions of interest,” as discussed in proposed regulations
issued under section 6011 on December 4, 2006, should be finalized, taking into
account comments the AICPA submitted on March 2, 2007.
[Note: See AICPA comments on these matters, submitted on March 2, 2007,
available at:
http://tax.aicpa.org/Resources/Tax+Advocacy+for+Members/IRS+Regulation+and+
Administration/AICPA+Comments+on+Proposed+Reportable+Transaction+Regula
tions.htm]
5.
Guidance should be issued regarding the penalties under sections 6707 and 6708.
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Trust, Estate and Gift Tax Technical Resource Panel (Steven A. Thorne, Chair, (312)
486-9847, stethorne@deloitte.com; or Eileen Sherr, AICPA Technical Manager, (202) 4349256, esherr@aicpa.org) NOTE: Comments are listed in priority order as High, Medium,
or Low.
High Priority Items
1.
Guidance is needed on the disclosure rules on listed transactions as applied to
estates and trusts under sections 6011, 6111 and 6112 for tax shelters, transactions
of interest, and reportable transactions. IRS Notice 2006-16, Sec. 3.02 (issued
February 27, 2006) was useful in eliminating duplicate disclosures by taxpayers;
however, additional guidance is still needed on the application of these provisions in
the estate and gift tax area.
2.
Guidance is needed regarding Circular 230 and how the requirements relate to estate
planning, gift tax planning, etc., for example, what constitutes principal purpose or
significant purpose transactions, and whether the statutory exclusion applies to
combination strategies like installment sales to defective grantor trusts. [See also,
the item under Tax Practice Responsibilities Committee.]
3.
Guidance is needed under section 2053 regarding the extent to which post death
events may be considered in determining the value of a taxable estate. We note that
proposed regulations (REG-143316-03) were issued on April 20, 2007 and look
forward to final regulations on this after public comments are considered.
4.
A change in the due date of Form 3520A is requested from March 15 to April 15 for
filers, to coincide with the due date for calendar year filers for related returns. If a
change in the due date is not possible, then an extension or penalty relief is
requested for taxpayers who file by April 15. [Note: See AICPA comments to IRS
on this submitted on January 31, 2007, available at:
http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Regulation+and+Administrati
on/AICPA+Comments+on+Foreign+Trust+Reporting+Forms.htm]
5.
A simplified procedure is needed to obtain an extension of time to elect out of the
automatic allocation of the GST exemption to indirect skips and at the end of the
estate tax inclusion period, similar to Rev. Proc. 2004-46.
6.
Guidance is needed on the ability to split gifts under section 2513 in Crummey or
similar situations, where the donee spouse has an interest in the trust and others
have the ability to withdraw the contributed assets but all the transfers made to the
trust during the year may be withdrawn by trust beneficiaries.
Such guidance is particularly needed in the case of late filing of gift tax returns.
Because of the late filing, there is no opportunity to elect out of deemed allocation
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(i.e., each spouse’s GST exemption would be allocated to his or her portion of the
transfer) (reg. section 26.32-1(b)(4)(iii), Ex. 5.).
7.
The current tax reporting on Form 1040NR for foreign non-grantor trusts (and
foreign grantor trusts with a US owner) is extremely difficult because the IRS form
is not designed for fiduciary tax return reporting. By creation of a new Form
1041NR, which could include reporting currently on Forms 3520,3520-A tax
reporting could eliminate confusion, mistakes in processing returns and enhance tax
compliance filing requirements. [See AICPA Comments on Foreign Trust Reporting
Issues submitted to Treasury and IRS on January 31, 2007, available at:
http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Regulation+and+Administrati
on/AICPA+Comments+on+Foreign+Trust+Reporting+Forms.htm.]
Medium Priority Items
8.
Final regulations should be issued under section 2642 regarding qualified severance.
[Note: See AICPA comments on these proposed regulations (REG–145987-03)
under section 2642(a)(3) submitted on February 9, 2005, available at:
http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Regulation+and+Administrati
on/AICPA+Asks+IRS+to+Clarify+Qualified+Severance+Regs.+for+GST+Trusts.ht
m.]
9.
Guidance is needed on the consequences under various estate, gift, and generation
skipping transfer tax provisions of using a family-owned company as the trustee of
a trust. [Note: See AICPA pre-release comments on this item, which was on last
year’s IRS business plan, submitted on March 29, 2006, available at:
http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Trusts/AICPA+Suggests+Par
ameters+for+Private+Trust+Company+Guidance.htm.]
Low Priority Items
10.
Guidance is needed regarding the appropriate means and timing of GST allocations
to pour over trusts from GRATs terminations.
11.
Guidance is needed on how the GST applies to grandfathered domestic trusts that
become foreign trusts. This issue may be analogous to a GST-grandfathered trust
which migrates from one state to another; thus, similar rules and safe harbors should
be considered.
12.
IRS should issue guidance under section 2632(c) regarding the deemed allocation of
GST exemption to certain lifetime transfers to GST trusts. In particular,
clarification is requested with regard to the exceptions to the definition of a GST
trust contained in section 2632(c)(3)(B)(i)-(vi) as well as the exception in the flush
language of this section dealing with gift tax annual exclusions. Six types of GST
trusts are defined, but there are many gray areas that we would request additional
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guidance. Finally, until regulations are issued under section 2632(c)(3)(B)(i)(III), as
required by such section, we believe this provision has no effect.
13.
Guidance is needed under section 2632(c)(5)(A)(i) and examples addressing the
application of the GST exemption automatic allocation rules for indirect skips in a
situation in which a trust subject to an estate tax inclusion period (ETIP) terminates
upon the expiration of the ETIP, at which time the trust assets are distributed to
other trusts that may be GST Trusts.
14.
Clarification is needed in the instructions to Form 709 with regard to Column C in
Part 3 of Schedule A as to the election made under section 2632(c) (electing “ in
and out” of a deemed allocation.) The instructions imply that checking the box in
Column C applies only for transfers reported on the return. Confusion can result as
the instructions provide that, if a prior election has been made with respect to future
transfers, the box in Column C should not be checked and no explanatory statement
should be filed with the applicable Form 709.
15.
Revenue procedures should be issued under sections 2055 and 2052 containing
sample charitable lead trust provisions.
16.
Guidance is needed under section 642(c) on whether income in respect of a
decedent (IRD) that is reported and used in calculating the estate’s charitable
deduction on the estate tax return should be treated as “gross income” and allowed
as a charitable deduction on the estate’s fiduciary income tax return when the IRD is
paid to a charitable organization pursuant to the governing instrument.
17.
Guidance is needed under section 645 regarding elections to include revocable
trusts in an estate. Will 9100 relief be available on missed elections?
18.
Guidance is requested regarding section 199 regulations as they relate to estate and
gift tax. [See also, item 2 under Tax Accounting Technical Resource Panel.]
19.
Guidance is needed under section 2704 regarding restrictions on the liquidation of
an interest in a corporation or partnership.
20.
Guidance is needed on the allocation of indirect deductions for charitable remainder
trusts.
21.
Guidance is needed regarding obtaining of bonds for all section 6166 cases in light
of the Tax Court Roski decision.
22.
Guidance is needed on the implementation and transition rules for the transfer tax
changes currently expected in 2010 and 2011 unless there is legislative action.
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