Line Items

In Announcement 2008-103, the IRS provided procedures and guidelines for claiming refunds of excise tax paid by domestic coal producers and exporters on exported coal. The guidance was in response to an extension by Congress of the tax years for which refunds may be claimed, to those preceding the normal three-year statute of limitations of IRC § 6511. The provision was part (section 114) of the Energy Improvement and Extension Act, a division of the Emergency Economic Stabilization Act of 2008. Thus Congress overruled the Supreme Court’s holding in U.S. v. Clintwood Elkhorn Mining Co. (101 AFTR2d 2008-1612, “Tax Matters: The Code Trumps Tucker,” JofA, July 08, page 87) that a refund claim for the tax may be pursued only within the time frame of section 6511 and administrative strictures of section 7422. The tax was held in 1998 to violate the export clause of the Constitution in Ranger Fuel Corp. v. U.S. (83 AFTR2d 99-375).

The new law provided only a 30-day window, until Nov. 3, 2008, to claim refunds of tax paid between Oct. 1, 1990, and Oct. 3, 2008. The tax, which continues to be levied on domestically sold coal to fund a miners’ black lung disability trust fund, has not been collected on exported coal since 2000.

The U.S. District Court for the Western District of Michigan vacated its earlier order that had granted summary judgment to the taxpayer in ABC Beverage Corp. v. U.S. (102 AFTR2d 2008-5905, “Tax Matters: Lease Buyout Portion of Purchase Ruled Deductible,” JofA, Dec. 08, page 94). The court said after reviewing its earlier opinion that issues of material fact remained pending and set the case for trial. ABC had claimed a deduction for the $6.25 million portion of its $11 million purchase of a business site that it attributed to buying out an onerous lease on the property. In a motion in limine, the government sought to restrict trial evidence to when ABC paid for the property and said the remaining issue was in which tax year the deduction was properly allowed under the economic performance test.

Black & Decker Corp. settled its tax case with the government for $69.5 million including interest after the Fourth Circuit last year reversed and remanded the toolmaker’s refund suit in the U.S. District Court for Maryland (see “Tax Matters: IRS, B&D Tool Up for Trial,” JofA, May 07, page 91). The case involved a claimed capital loss on contingent health care claims B&D transferred to a subsidiary formed to manage the claims. B&D had sought a refund of more than $57 million plus interest for tax years 1995 through 2000 stemming from a carryover of the loss from 1998. The Fourth Circuit overruled the district court’s application of the economic substance doctrine, finding that the district court misapplied the test to B&D’s general business practices rather than the specifics of the transaction. The settlement amount included reduction of B&D’s tax liability by overpayments in subsequent years and left open the possibility of a further adjustment in B&D’s favor from an ongoing, unrelated dispute under the competent authority process with two foreign taxing authorities for some of the years at issue.

The IRS designated as a “transaction of interest” certain dispositions of assets of a charitable remainder trust (CRT) purporting to fall under the exception for disregarding basis attributable to a term interest in determining gain or loss on sale or disposition of trust property. In Notice 2008-99, the Service said that the transaction and those substantially similar must be disclosed as provided in Treas. Reg. § 1.6011-4 if entered into on or after Nov. 2, 2006. Also, material advisers who make a tax statement involving the transaction must adhere to disclosure obligations of IRC §§ 6111 and 6112.

In the transaction, a CRT to which a grantor contributes appreciated assets (and claims a charitable deduction for the charitable remainder interest) sells them and reinvests the proceeds in new assets, recognizing as their basis their fair market value. Next, the grantor and charitable beneficiary sell their trust interests to a third party for an amount roughly equal to the fair market value of the trust’s assets. Finally the trust terminates, distributing its assets to the third party. Besides taking the charitable deduction, the grantor claims to recognize no gain in the transaction, taking the position that the sale to the third party qualifies for the exception under IRC § 1001(e)(3) to the general rule that the portion of basis attributable to a term interest is disregarded in determining gain or loss on sale of property.

Comments on how the transaction might be addressed in published guidance are due Jan. 31.

Training and information resources on the Service’s “Stay Exempt” Web site for exempt organizations ( now include a four-part “mini-course” on filing the revised Form 990, Return of Organization Exempt From Income Tax. The audio and slide-show presentation is more than two hours long, broken up into five sessions.

The Service set a public hearing in mid-January on temporary rules that reduce the automatic filing extension period for partnerships, trusts and estates from six months to five.

The provision of TD 9407 (REG-115457-08) is effective for extension requests with respect to returns due on or after Jan. 1, 2009. It affects entities with a tax year ending on or after Sept. 30, 2008, that file Form 1065, U.S. Return of Partnership Income; Form 1041, U.S. Income Tax Return for Estates and Trusts; or Form 8804, Annual Return for Partnership Withholding Tax. The shorter extension period is intended to better enable partners and beneficiaries to receive Schedules K-1 and other information from the entities in a more timely manner for inclusion in their individual returns by the usual six-month extended due date. It also brings the extended due date in line with that of S corporations, which normally file by March 15 and therefore have an extended six-month due date of Sept. 15.

In written comments, the American Bankers Association and National Association of Publicly Traded Partnerships have opposed the measure, with the latter suggesting instead lengthening the extension period for individual returns of persons receiving K-1s to seven months, giving them an extended due date of Nov. 15. KPMG suggested in written comments delaying the change for at least a year while pursuing legislative action to move up the original due date for partnership returns by a month. In a survey of AICPA Tax Section members, 68% supported the five-month extension now while seeking due date changes.

The hearing is scheduled for Jan. 13 at 10 a.m. at the IRS Building in Washington.


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