Overview
Treasury, IRS Release Interim Guidance on UBIT Issues Under 2017 Tax Legislation: Today, Treasury and the IRS released Notice 2018-67, which provides interim guidance and transition rules, and solicits additional comments, regarding a newly-enacted provision that generally requires exempt organizations to compute unrelated business taxable income (UBTI) separately with respect to separate businesses. The notice also provides guidance on the treatment of global intangible low-taxed income (GILTI) for unrelated business income tax (UBIT) purposes.
UBIT Guidance. Section 512(b)(6) requires an organization subject to UBIT, with more than one unrelated trade or business, to calculate UBTI separately with respect to each trade or business. Section 512(b)(6) was enacted by the 2017 tax legislation, P.L. No. 115-97, informally known as the Tax Cuts and Jobs Act (TCJA). In enacting section 512(a)(6), Congress did not provide criteria for determining whether an exempt organization has more than one unrelated trade or business or how to identify separate unrelated trades or businesses for purposes of calculating UBTI. The notice outlines general concepts for identifying separate trades or businesses for purposes of section 512(a)(6) and provides interim reliance on a reasonable, good-faith standard for making such a determination (and specifically states that the use of NAICS six-digit codes will be considered a reasonable, good-faith interpretation until regulations are proposed). The notice also provides interim and transition rules under section 512(a)(6) for aggregating income from partnerships and debt-financed income from partnerships. Exempt organizations, other than section 501(c)(7) organizations, generally may rely on these aggregation rules. The notice also provides that any fringe benefit income included in UBTI under newly-enacted section 512(a)(7) is not subject to section 512(a)(6).
GILTI Guidance. The TCJA also enacted the GILTI regime, under which a United States shareholder who owns 10% or more of stock in a foreign corporation generally is required to include such shareholder’s GILTI in gross income on a current basis. At a high level, GILTI generally means all net income of a United States shareholder’s controlled foreign corporations, with limited exceptions for certain types of income (such as income already taken into account under subpart F), over and above a deemed fixed return on the tangible assets of the United States shareholder’s controlled foreign corporations. The notice provides that, an inclusion of GILTI should be treated in the same manner as an inclusion of subpart F income for purposes of the exclusion of dividends from UBTI and the debt-financed income rules. Accordingly, an inclusion of GILTI will be treated as a dividend that is generally excluded from UBTI, unless an exception applies.
Treasury and the IRS Release 162(m) Guidance: Today, the Treasury and the IRS released Notice 2016-68, which provides guidance on the application of section 162(m). Section 162(m)(1) generally limits the allowable deduction for a taxable year for remuneration by any publicly held corporation paid with respect to a covered employee. The notice provides guidance on the amended rules for identifying covered employees and the operation of the grandfather rule.
IRS Publishes New FAQ Regarding FATCA: Today, the IRS published a new FAQ regarding the FATCA certification requirement under section 10.03 and Appendix I of the QI Agreement. The new FAQ is Q17 under Certifications and Periodic Reviews.
FISCALIS Tax Gap Project Group of the EU Commission Publishes Report on Corporate Income Tax Gap Estimation Methodologies: The FISCALIS Tax Gap Project Group released a report regarding the gap between corporate tax revenues as they should be collected versus as they are collected. The report “aims at mapping different methodologies and approaches for estimating the [corporate income tax] gaps and explaining their advantages and disadvantages, related to both deliberate and non-deliberate actions by taxpayers that lead to shortfall in revenues.