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FATCA Deadlines Delayed

The IRS delayed several key deadlines under the Foreign Account Tax Compliance Act (FATCA), some of which otherwise would have taken effect as early as the beginning of 2013 (Announcement 2012-42). The IRS said it had received feedback that complying with the original deadlines and other requirements in proposed regulations (REG-121647-10) was impractical for some taxpayers.

Under the announcement, an obligation will be considered a “preexisting obligation” that is not subject to FATCA withholding if it is maintained or executed by the withholding agent as of Jan. 1, 2014 (instead of 2013). The new date also applies to participating FFIs (foreign financial institutions that enter into withholding agreements with the IRS) and deemed-compliant FFIs (foreign financial institutions that do not have to enter into IRS agreements).

The announcement also amends the transition rules for completing due diligence on existing obligations. Under the new rule, a withholding agent will not be required to withhold on payments made to a prima facie FFI (payees that have indications of being FFIs) for a preexisting obligation prior to July 1, 2014, unless the withholding agent has documentation establishing that the payee is a nonparticipating FFI. A similar rule delays the date participating FFIs must determine the status of a prima facie FFI.

The date by which a withholding agent will be required to document payees that are entities other than prima facie FFIs is delayed to Dec. 31, 2015. A participating FFI will be required to perform the requisite identification procedures and obtain the appropriate documentation to determine whether an entity other than a prima facie FFI is itself a participating FFI by the later of Dec. 31, 2015, or the date that is two years after the effective date of its FFI agreement.

The announcement also delays dates for identifying and documenting preexisting high-value accounts, identifying “recalcitrant” account holders, and filing certain information reports. It also delays withholding by a participating FFI from proceeds of a sale or other disposition producing U.S.-source income to dispositions occurring after Dec. 31, 2016, two years later than previously.

Tax Court Stands Firm on Whitehouse

On remand from the Fifth Circuit of its earlier decision, the Tax Court again held that redevelopers of a New Orleans historic landmark overvalued their qualified conservation contribution of a façade easement on two adjoining buildings, subjecting the partnership to a tax deficiency and an accuracy-related penalty for a gross valuation misstatement.

The case, Whitehouse Hotel Limited Partnership, 139 T.C. No. 13 (2012), involves the Maison Blanche and Kress buildings near New Orleans’s French Quarter. The partnership executed an agreement to redevelop the buildings into a hotel. It also conveyed an easement to the nonprofit Preservation Alliance of New Orleans providing that it would maintain the exteriors’ condition and historic character. Whitehouse subsequently developed the buildings into a Ritz-Carlton Hotel.

Whitehouse claimed on its 1997 federal income tax return a charitable contribution deduction for $7.44 million, the amount an appraiser said reflected the property’s reduction in value caused by the easement. The IRS determined that the allowable deduction should have been $1.15 million.

In earlier proceedings (131 T.C. 112 (2008); see Tax Matters coverage, “IRS, Historic Hotel Face Off Over Façade,” April 2009, page 67), the Tax Court rejected aspects of both sides’ analyses and calculated its own value for a deduction of nearly $1.8 million.

On appeal, the Fifth Circuit vacated the Tax Court’s decision, saying the court had not duly considered the buildings’ highest and best use as a luxury hotel under their likely combination into a single functional unit, which would tend to keep them under single ownership. It also said the Tax Court should further consider the effect on the fair market value of the easement’s prohibition against blocking views of the Maison Blanche building’s façade, thus depriving Whitehouse of an opportunity to build additional stories on top of the Kress building. 

On remand, the Tax Court said the property’s value on its valuation date should have been determined under its second-best use, as a nonluxury hotel. It also reiterated its earlier preference for local, versus national, comparable values. Regarding Whitehouse’s impaired ability to expand atop the Kress building, the Tax Court concluded, as it had earlier, that the evidence did not clearly establish that such a restriction existed, or, if it did, that the condition was enforceable in perpetuity as required by Regs. Sec. 1.170A-14(g)(1). Nonetheless, as instructed by the appellate court, the Tax Court reassessed the easement’s valuation assuming an enforceable restriction. However, using a comparable-sales approach, the court arrived at a figure only slightly higher than its earlier one. It also sustained the application of the accuracy-related penalty.

Dozens Indicted on Stolen Identity Charges

Federal officials in Miami announced indictments on Oct. 11 of 40 people in 20 cases for stolen identity tax refund fraud.

The indictments included one scheme in which three defendants were charged with filing more than 5,000 returns using Social Security numbers of deceased taxpayers to claim fraudulent refunds totaling approximately $14 million, of which more than $6 million allegedly was received and deposited in the defendants’ bank accounts.

Many of the other indictments involved information stolen from living taxpayers, including one in which two employees of a health care provider allegedly stole patients’ personal information and sold it. In another, a husband and wife allegedly operated two tax preparation companies from which they filed false returns for unknowing taxpayers and deposited the fraudulent refunds in the other defendants’ accounts. One defendant was charged with obtaining more than 26,000 stolen Social Security numbers and providing them to co-conspirators to use in filing fraudulent tax returns.

A recent TIGTA report determined that Florida led the nation in stolen identity tax refund fraud, which nationwide went undetected by the IRS more often than not (see previous Tax Matters coverage, “TIGTA Recommends Identity Theft Safeguards,” Oct. 2012, page 65).


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