Overview
IRS Will Study Application of Section 355 Active Trade or Business Requirement to Entrepreneurial Ventures: Today, the IRS released a statement to inform taxpayers and their advisors of a study regarding the active trade or business (ATB) requirement under section 355(b), to request comments on the matters under study, and to indicate that the IRS will entertain requests for private letter rulings as described in the statement.
The statement notes that the IRS has observed a significant rise in entrepreneurial ventures whose activities consist of research and development in lengthy phases. During these phases, the ventures often collect no income or negligible income but nonetheless incur significant financial expenditures and perform day-to-day operational and managerial functions that have historically evidenced an “active” business. Because of the emergence of these ventures, the IRS and Treasury are considering guidance to address whether a business can qualify as an ATB if entrepreneurial activities, as opposed to investment or other non-business activities, take place with the purpose of earning income in the future, but no income has yet been collected.
Tax Court Issues Opinion in Loveland v. Commissioner: Today, the Tax Court issued an opinion in Loveland v. Commissioner. In Loveland, the IRS filed a notice of federal tax lien against the plaintiffs’ property. The plaintiffs requested a collection due process hearing under section 6320, requesting that the IRS consider a previously rejected offer-in-compromise. The IRS declined to review the offer-in-compromise, arguing that plaintiffs had a prior opportunity for a hearing under Treas. Reg. § 301.6320-1(e)(1). The Tax Court held in favor of the plaintiffs, finding that a meeting with a collections officer is not a prior administrative proceeding under section 6330(c)(4)(A)(i) and Treas. Reg. § 301.6320-1(e)(1), and that the Commissioner abused his discretion by failing to consider the proposed offer-in-compromise.
TIGTA Releases Two Reports: Today, the Treasury Inspector General for Tax Administration (TIGTA) released two reports. One report summarized the results of an audit that was initiated to evaluate the IRS’s efforts to ensure the accuracy of treaty-based income tax exemptions claimed by nonresident aliens. Based on the audit, TIGTA recommended that the IRS should (1) consider updating the appropriate forms, instructions, and publications to clarify how nonresident aliens who do not file a Form 8233 (Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual) with their employer are still able to claim the treaty exemption, and (2) increase outreach and education to withholding agents and nonresident aliens to improve their knowledge of the information reporting rules, improve the accuracy of information reporting, and reduce the number of erroneous tax returns. The second report was on an audit that was initiated to determine whether prior TIGTA cybersecurity audit recommendations have been appropriately addressed documented, and closed.
EU Releases Draft Report on Council Directive on Common System of a Digital Services Tax: Today the European Union released a draft report on the proposal for a European Council directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services.