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Spotlight

Speaking at the American Bar Association (ABA) Section of Taxation meeting, acting Internal Revenue Service (IRS) Commissioner David Kautter was quoted as saying that the IRS hopes to complete several guidance projects implementing the Tax Cuts and Jobs Act (TCJA) by mid-August 2018, although some high-profile projects may take longer. Projects mentioned by Kautter include:

— Proposed regulations on the Internal Revenue Code¹ Section 199A pass-through deduction are targeted for mid- to late-July, although he cautioned that the proposed guidance would not answer every issue.

— Proposed regulations on Section 163(j) are targeted for late summer or early fall.

— Proposed regulations on Section 951A (GILTI) are targeted for late summer and the IRS also hopes to issue regulations on 168(k) expensing over the summer.

Kautter also reportedly said that guidance on Section 965 is not yet complete, stating that the IRS may issue another notice in the next couple of weeks and will probably have a notice of proposed rulemaking this summer.

Finally, Kautter reportedly said that most of the 2018 tax forms have been drafted and are under review, with the plan to finish instructions by the end of May and work on publications over the summer.

United States (US) Treasury and IRS officials addressed a number of tax reform related issues at the ABA Section of Taxation meeting on 11 May. Specifically, the officials addressed the following:

— Section 163(j) – An IRS official was quoted as saying that the IRS's corporate division is spending significant time on issues concerning consolidated and affiliated groups. The official noted that these issues depend on substantive interpretations by other IRS divisions and would require close collaboration with other divisions before resolving any corporate tax questions. A Treasury official also reportedly said that Treasury is considering ways to address the treatment of the carryover of excess interest under Section 382 in the proposed Section 163(j) regulations.

— Section 951A – A Treasury official noted that historically the gross-up has always gone in the same basket as the income to which the taxes relate and was quoted as saying that Treasury expects to issue guidance confirming that result for the Section 78 gross-up attributable to GILTI.

— Section 1446(f) – An IRS official noted that they are looking at several different issues in relation to this provision (requiring withholding on dispositions of partnership interests). In response to one question, the official reportedly stated that with respect to a distribution in excess of a foreign partner's basis in a partnership that has a US trade or business, withholding applies to the entire distribution.

— Section 988 – An IRS official was quoted as saying that taxpayers can rely on proposed regulations under Section 988 that allow the mark-to-market method of accounting for some foreign currency transactions. Taxpayers can elect mark-to-market for tax years ending on or after 19 December 2017, the publication date of the regulations.

— Section 482 – Speaking on a panel about the impact of tax reform on transfer pricing, an IRS official reportedly acknowledged that there may be legitimate reasons for taxpayers to change their transfer pricing policies, but noted that it is not difficult to imagine taxpayers attempting to use transfer pricing to avoid the TCJA's anti-avoidance provisions, particularly the base erosion and anti-abuse tax (BEAT), which would raise the concern of the IRS. The official also was quoted as saying that the IRS plans to finalize the 2015 temporary regulations under Section 482, and any changes would be to improve clarity rather than change the rules.

— Section 385 – A Treasury official was quoted as saying that international items addressed as part of Executive Order 13789 to reduce tax regulatory burdens remains in the Priority Guidance plan. Additionally, the official was quoted as saying that Treasury is considering whether the Section 1.385-3 regulations are still necessary in light of tax reform.

An IRS official, speaking at an International Tax Institute event, was reported as saying that the IRS is considering whether potential regulations under Section 267A should prevent the denial of deductions when a hybrid instrument or entity is not the cause of preferential treatment of the relevant income. It was reported that Section 267A regulations are expected to be issued by the end of 2018.

In dismissing a taxpayer's suit against the IRS, the US District Court for the Northern District of California held that a taxpayer has no right to the IRS appeals process in a transfer pricing dispute. The Court held that the Taxpayer Bill of Rights, upon which the taxpayer relied, was intended to catalogue taxpayers' already existing rights and obligations, and did not establish any new rights. The Court also held that Rev. Proc. 2016-22, stating that cases docketed in the Tax Court will not be referred to IRS Appeals if the referral isn't in the interest of sound tax administration, and the IRS' decision not to refer the case to IRS Appeals was not reviewable under the Administrative Procedure Act because neither was a final agency action.

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ENDNOTES

¹ All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.