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January 17, 2021

U.S. Tax This Week for January 15

Ernst & Young's U.S. Tax This Week newsletter for the week ending January 15 is now available. Prepared by Ernst & Young's National Tax Department in Washington, D.C., this weekly update summarizes important news, cases, and other developments in U.S. taxation.

Top of the Week

New final regulations address application of IRC Section 163(j) limitation to CFCs and partnerships, while reserving on certain provisions

New final regulations (TD 9943, the 2021 Final Regulations), released January 5, 2021, provide guidance on applying the limitations on the deductibility of business interest expense (BIE) under IRC Section 163(j) (the Section 163(j) limitation), which was significantly modified by the Tax Cuts and Jobs Act (TCJA), and further modified by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The 2021 Final Regulations retain the same basic structure as the proposed regulations released in July 2020 (the 2020 Proposed Regulations) and include certain definitions and rules for applying the Section 163(j) limitation to controlled foreign corporations (CFCs) and partnerships. EY Tax Alert 2021-0059 has details. 

Final Section 451 regulations provide new rules for timing of income recognition and treatment of advance payments On January 6, 2021, the Treasury Department and Internal Revenue Service (IRS) published final regulations under IRC Section 451 (T.D. 9941), which were previously released on the IRS website on December 21, 2020. The final regulations include guidance related to (1) timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting (Treas. Reg. Section 1.451-3 under IRC Section 451(b)) and (2) advance payments for goods, services, and certain other items (Treas. Reg. Section 1.451-8 under IRC Section 451(c)). EY Tax Alert 2021-0062 has details.

EY Guides and Publications

Budget reconciliation basics
Budget reconciliation is a process that permits legislation impacting revenues and spending to pass the Senate with 51 votes rather than the 60-vote filibuster threshold for most other legislation, thus avoiding numerous procedural hurdles that can slow or derail controversial legislation in the Senate. This publication from Washington Council Ernst & Young provides additional details.

Our US employment tax rates and limits publication is now available for 2021
This is our annual publication of key federal and state rates and limits is updated for 2021.

Washington Dispatch 2020 Year-in-Review (January - December)
This is a special edition of Ernst & Young's Washington Dispatch - Year in Review. Prepared by Ernst & Young's International Tax and Transaction Services group, this newsletter summarizes recent developments in US international taxation.

Upcoming Webcasts

New Section 162(m) final regulations: what do you need to know now? (January 19)
During this Thought Center Webcast, Ernst & Young professionals will provide an overview of the changes to the rules, including the expansion of the public issuer and covered employee definitions, and discuss areas where changes were made to the proposed regulations..

Final Section 163(j) regulations address questions on business interest expense limitation (January 21)
During this Thought Center Webcast, Ernst & Young professionals will discuss recently released final Treasury regulations that provide additional guidance for applying the Section 163(j) business interest expense limitation, including with respect to certain partnerships and controlled foreign corporations.

Tax in the time of COVID-19 (January 22)
During this Thought Center Webcast, Ernst & Young professionals will provide updates on: (i) Elections, US economy and tax policy; (ii) What’s happening at the IRS; and (iii) Breaking developments.

Recent Tax Alerts

Internal Revenue Service

— Jan 14: IRS extends to September 30 availability of safe harbors for REMICs and investment trusts providing mortgages modified in light of COVID-19 (Tax Alert 2021-0094)

— Jan 14: IRS publishes final IRC Section 199A regulations for certain farming cooperatives, along with procedures for calculating their W-2 wages (Tax Alert 2021-0088)

— Jan 13: IRS finalizes regulations clarifying application of employer shared responsibility provisions (Tax Alert 2021-0081)

— Jan 12: IRS releases final IRC Section 1031 like-kind exchange regulations with some changes (Tax Alert 2021-0073)

— Jan 11: IRS issues guidance on mandatory 60-day postponement of certain tax-related deadlines due to federally declared disaster (Tax Alert 2021-0068)

— Jan 11: IRS finalizes regulations on TCJA exemption for payments of certain aircraft management services (Tax Alert 2021-0066)

— Jan 11: IRS updates tax-exempt organization compliance program initiatives, determination letter procedures, and Form 1024-A (Tax Alert 2021-0065)

— Jan 08: IRS issues final regulations simplifying tax accounting rules for small businesses to reflect TCJA favorable changes (Tax Alert 2021-0053)

— Jan 08: Consolidated Appropriations Act, 2021, includes change that impacts life insurance contract qualification test (Tax Alert 2021-0052)


— Jan 14: PE Watch | Latest developments and trends, January 2021 (Tax Alert 2021-0091)

— Jan 14: Dutch Government releases decree on fixed establishments for VAT purposes (Tax Alert 2021-0093)

— Jan 14: Québec eliminates QST ITR restrictions for large businesses (Tax Alert 2021-0090)

— Jan 13: USTR announces findings in Section 301 investigations on DSTs adopted by India, Italy, Turkey; suspends punitive tariff actions on French origin goods (Tax Alert 2021-0080)

— Jan 13: Nigeria's Government considers Petroleum Industry Bill 2020, a new framework for the oil and gas sector (Tax Alert 2021-0079)

— Jan 13: Luxembourg Tax Authorities issue guidance on interest limitation rules (Tax Alert 2021-0075)

— Jan 11: Kenya enacts significant tax measures for 2021 (Tax Alert 2021-0067)

— Jan 08: Spanish Parliament approves final legislation to implement MDR (Tax Alert 2021-0056)


— Jan 13: What to expect in Washington (January 13) (Tax Alert 2021-0076)

— Jan 13: Senator Wyden details Finance Committee tax priorities (Tax Alert 2021-0085)


— Jan 14: California proposes a pass-through entity-level tax to provide tax relief to small businesses economically impacted by COVID-19 (Tax Alert 2021-0092)

— Jan 14: Colorado income tax withholding rate is decreased to 4.55% effective January 1, 2021 (Tax Alert 2021-0086)

— Jan 13: California 2021 income tax withholding tables released, use of California DE 4 is mandatory (Tax Alert 2021-0078)

— Jan 12: Wyoming will not charge COVID-19 UI benefits to employer accounts through December 31, 2020 (Tax Alert 2021-0072)

— Jan 08: New Mexico top personal income tax rate increased starting in 2021; withholding tables released; 2021 Form W-2 filing reminders (Tax Alert 2021-0058)

Recent Newsletters

ITS/Washington Dispatch
   Highlights of this edition include: Legislation

  • US Congress passes coronavirus stimulus and omnibus spending package that includes extension of CFC look-through

IRS news

  • IRS issues final and proposed PFIC regulations that provide mix of favorable and unfavorable provisions
  • Final and proposed regulations on passive foreign investment companies have both favorable and unfavorable implications for insurance companies
  • Treasury to focus on other international projects, tax treaties as TCJA guidance nears completion
  • Treasury’s FinCEN further extends certain signature authority reporting (FBAR, Form 114) over foreign financial accounts

Transfer Pricing News

  • Transfer pricing enforcement remains priority even while TCJA provisions may negate adjustments
  • IRS APMA seeing more queries on transfer pricing consequences of coronavirus pandemic

OECD Developments

  • OECD issues guidance on transfer pricing implications of COVID-19, hard- to-value intangibles
  • OECD releases fourth peer review report on BEPS Action 5 on the Exchange of Information of Tax Rulings
  • OECD’s FTA hosts virtual meeting of tax administration leaders

IRS Weekly Wrap-Up

Final Regulations

 TD 9936Guidance on Passive Foreign Investment Companies; Final Rule
 TD 9944Credit for Carbon Oxide Sequestration

Proposed Regulations

 REG-111950-20Guidance on Passive Foreign Investment Companies and the Treatment of Qualified Improvement Property Under the Alternative Depreciation System for Purposes of Sections 250(b) and 951A(d); Proposed Rule
 REG-115057-20Mandatory 60-Day Postponement of Certain Tax-Related Deadlines by Reason of a Federally Declared Disaster


 TD 9941Taxable Year of Income Inclusion Under an Accrual Method of Accounting and Advance Payments for Goods, Services, and Other Items

Revenue Procedures

 2021-12Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.
 2021-11Wage limitation for the section 199A(g) deduction

Internal Revenue Bulletin

 2021-02Internal Revenue Bulletin of January 11, 2021

Because the matters covered herein are complicated, U.S. Tax This Week should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.