Line items

Regs target GST “transactions of interest”

The IRS issued final regulations Nov. 10 that add to the categories of listed transactions or transactions of interest those that reduce or eliminate the generation-skipping transfer (GST) tax. The regulations also require disclosure of such transactions under Sec. 6011 (T.D. 9556).

The final regulations adopt without change proposed regulations issued in 2009 (REG-136563-07). They provide rules for the disclosure of listed transactions and transactions of interest with respect to the GST tax and rules relating to the preparation and maintenance of reportable transaction lists.

The regulations also provide that a material adviser will have 30 calendar days from the date the list maintenance requirement under Regs. Sec. 301.6112-1 first arises to prepare the required list. However, when designating a transaction as a reportable transaction, the IRS may in guidance provide for a period longer than 30 days.

The regulations were effective Nov. 14.

 

Partnership interest debt discharge regs finalized

The IRS on Nov. 15 issued final regulations on the application of Sec. 108(e)(8) to partners and partnerships (T.D. 9557). The regulations provide rules for determining a partnership’s discharge of indebtedness (DOI) income when it transfers a partnership interest to a creditor to satisfy a partnership debt.

The regulations also discuss how Sec. 721 applies when a partnership’s debt is contributed to the partnership in exchange for a capital profits interest in the partnership. The regulations also cover how partnership DOI income is allocated as a minimum gain chargeback under Sec. 704.

The American Jobs Creation Act of 2004, P.L. 108-357, expanded the scope of Sec. 108(e)(8) to include partnership discharges of indebtedness. Under Sec. 108(e)(8), if a debtor partnership transfers a capital or profits interest in the partnership to a creditor in satisfaction of its debt (recourse or nonrecourse), the partnership is treated as having satisfied the debt with an amount of money equal to the fair market value (FMV) of the partnership interest. If the debt exceeds the FMV of the transferred interest, the excess is DOI income that must be included in the distributive shares of the partners who were partners immediately before the debt discharge.

The regulations provide that the FMV of a partnership interest is its liquidation value—that is, the amount of cash or property that the creditor would receive for the equity interest if, immediately after the transfer, the partnership sold all its assets for cash equal to the FMV of those assets and then liquidated (Regs. Sec. 1.108-8(b)(2)(iii)). However, this liquidation value can be used to determine the FMV of a partnership interest only if four conditions are met (Regs. Secs. 1.108-8(b)(2)(i)(A)–(D)). If the conditions are not satisfied, the FMV of the transferred partnership interest is based on all the facts and circumstances.

The regulations were effective Nov. 17.

 

Noted in passing

  The IRS acquiesced to the Tax Court’s holding in O’Donnabhain (134 T.C. 34 (2010), acq., Action on Decision 2011-03) that the costs of the taxpayer’s hormone therapy and sex-reassignment surgery were qualified medical expenses. In the well-publicized case, the court determined that the taxpayer’s gender-identity disorder was a disease within the meaning of Sec. 213 for which hormone therapy and sex-reassignment surgery were treatments. The IRS said it will no longer follow its position asserting otherwise in Chief Counsel Advice 200603025. For previous Tax Matters coverage of the case, see “Sex-Change Surgery Deductible Medical Expense,” May 2010, page 70.

  The IRS set up a telephone help line for technical questions regarding reporting and filing information required by Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), and other Title 31 issues. From within the United States, call 866-270-0733 toll-free; from outside the U.S. call 313-234-6146 (a toll call). See also frequently asked questions on the IRS website and the FBAR Resources page of the JofA and The Tax Adviser.

  No preparer tax identification number (PTIN) is required for enrolled retirement plan agents who prepare only forms in the 5300 and 5500 series or other exempt forms or returns (see list at tinyurl.com/6l84ol5). Like other preparers, however, enrolled retirement plan agents who for compensation prepare or assist in preparing all or substantially all of any nonexempt form or return must obtain a PTIN. See Notice 2011-91.

  Panama is now in the North American area as defined for purposes of the Sec. 274(h) substantiation requirements for deductible business expenses of attending a convention, seminar or similar meeting. Rev. Rul. 2011-26 included the isthmus in an updated listing of “beneficiary countries,” noting that the United States signed a tax cooperation and information exchange agreement with Panama earlier in 2011 that meets the requirements of Sec. 274(h)(6)(C)(i).

 

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