The IRS on Tuesday issued final regulations (TD 9542) governing elections by individual taxpayers, corporations and partnerships to deduct startup expenses or organizational expenditures. The regulations adopt with a slight change temporary regulations the Service issued in 2008 (TD 9411). The rules provide guidance on the application of section 902
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TOPICS / TAX
Business tax
“Killer B” Crackdown Finalized
The IRS issued new final regulations on cross-border reverse triangular reorganizations, popularly known as “Killer B” transactions (TD 9526). The regulations finalize with some modifications proposed regulations that were issued in 2008 (REG-136020-07). Previously, in Notices 2006-85 and 2007-48, the Service had said new rules were needed to thwart the
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RELIEF GIVEN FOR LATE ELECTIONS TO COMBINE REAL ESTATE ACTIVITIES The IRS established a special procedure by which taxpayers can make a late election to treat all their real estate activities as a single activity for purposes of meeting material participation rules. The guidance, in Revenue Procedure 2011-34, allows eligible
Carrying Back Net Operating Losses
One of the biggest questions surrounding net operating losses (NOLs) is when to use this potentially significant tax attribute. Once a decision is made about when an NOL will be used, it is important that it be carried back and/or forward properly. Under IRC § 172(b)(1), an NOL (in general)
Type B Reorganization Basis Method Updated
With Revenue Procedure 2011-35 issued May 31, the Service updated and revised methods by which an acquiring corporation may establish its basis in the stock of a target corporation in a type B reorganization under IRC § 368(a)(1)(B) or other transferred basis transaction. The general procedures were provided 30 years
Final Regulations Simplify Accounting Rules in Corporate Reorganizations
The IRS issued final regulations (TD 9534) intended to clarify and simplify rules concerning continuity of accounting methods and inventory methods in certain tax-free corporate reorganizations and liquidations. The regulations revise regulations under IRC §§ 381(c)(4) and 381(c)(5) and adopt with nonsubstantive modifications proposed regulations issued in 2007 (REG-151884-03). They
Final Regulations Simplify Reduced Research Credit Election
The IRS released final regulations late Tuesday (TD 9539) further simplifying an election method by which taxpayers may use a standard rate to reduce a research credit under IRC § 41 in lieu of reducing their research expense deductions. The final regulations also clarify how members of a controlled group
IRS Discontinues High-Low Method for Substantiating Travel Expenses
On Tuesday, the IRS announced that it is discontinuing the high-low method for substantiating lodging, meal and incidental expenses incurred in traveling away from home (Announcement 2011-42). Last year, the IRS asked for comments on whether the high-low method was still needed, and it received no comments. Under the high-low
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AICPA URGES STREAMLINING M-3 The AICPA recommended that the IRS reduce unnecessary or redundant information required on Schedule M-3, Net Income (Loss) Reconciliation. The suggestions were made in late April in a letter from Patricia Thompson, chair of the AICPA’s Tax Executive Committee. The IRS introduced Schedule M-3 in 2004
Section 179 Expensing for Noncorporate Lessors
While 100% bonus depreciation may be the “flavor of the month” when it comes to accelerated depreciation, it is limited to original-use property and is currently scheduled to sunset for most property at the end of 2011. IRC § 179 expensing therefore remains a prime option for small businesses, especially
“Associated-Property” Regs Survive “Strong” Challenge
The U.S. Court of Federal Claims upheld regulations requiring imputed interest on the basis of business property temporarily removed from service to be included in capitalized costs of property improvements. Virginia electric and natural gas utility Dominion Resources Inc. replaced coal burners in two of its electric generating plants, which
Government Contractor Withholding Delayed to 2013
The IRS issued final regulations (TD 9524) further postponing implementation of mandatory 3% withholding on payments from government entities to contractors and providing interim guidance. The final regulations also adopt a $10,000 withholding threshold for any single payment and provide a transition rule under which interest and penalties will not
IRS Addresses Accounting Software Audit Concerns
In a March 29 letter from Patricia Thompson, chair of the AICPA’s Tax Executive Committee, to Chris Wagner, commissioner of the IRS’ Small Business/Self-Employed Division, the AICPA communicated its concerns regarding the Service’s program to request the accounting software files of certain small business taxpayers under examination; the letter cites
IRS Raises Standard Mileage Rate for Second Half of 2011
In response to rising gasoline prices, the IRS has raised the standard mileage rate for business use of an automobile from 51 cents per mile to 55½ per mile, effective July 1 (Announcement 2011-40). The medical and moving standard mileage rate is increasing to 23½ per mile, also on July
IRS Publishes Interim Guidance on Stock Basis Reporting
On Wednesday, the IRS issued interim guidance on issues relating to the basis of stock subject to broker reporting (Notice 2011-56). The guidance responds to stakeholder comments received in response to final regulations on the topic issued last year (TD 9504). The IRS says it plans to issue proposed regulations
IRS Finalizes Alternative Simplified R&D Credit Rules
On Friday, the IRS issued final regulations governing the election and calculation of the alternative simplified research and development credit under IRC § 41(c)(5) (TD 9528). The new rules are effective for tax years ending after June 9, 2011. The final regulations extend the election procedures for the alternative incremental
IRS Eliminates Form 5472 Duplicate Filing Requirement
On Thursday, the IRS issued temporary and proposed regulations to remove the duplicate filing requirement for Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (TD 9529 and REG-101352-11). Under the current final regulations, corporations that are required
Schedule UTP Answers Posted
The IRS posted a series of questions and answers about the new requirement for large corporations to report their uncertain tax positions. The seven FAQs address both reporting requirements for Schedule UTP, Uncertain Tax Position Statement, and the IRS’ policy of restraint. For the 2010 tax year, corporations filing Form
Highway Repairs Are Domestic Production Property
The Tax Court held that a taxpayer’s receipts from highway construction projects were domestic production gross receipts (DPGR) permitting the taxpayer to claim a domestic production activities deduction. The court held that the taxpayer’s work substantially renovated real property, since it materially increased the property’s value, substantially prolonged its useful
Flow-Through Entities and Uncertain Tax Position Reporting
Privately held business entities organized as flow-through entities face unique state tax issues under FASB Accounting Standards Codification (ASC) Topic 740 relating to the accounting for uncertainty in income taxes. For federal purposes, only a small percentage of flow-through entities pay income taxes, and if the scope of ASC 740
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