Daily Tax Update - January 7, 2016: Treasury and IRS Withdraw Proposed Charitable Contribution Substantiation Rule

Treasury and IRS Withdraw Proposed Charitable Contribution Substantiation Rule:  The Treasury Department and the IRS announced the withdrawal of their proposed rule concerning substantiation requirements for certain charitable contributions (REG-138344-13).  On September 17, 2015, the Department of Treasury and the IRS issued a notice of proposed rulemaking, addressing charitable donee reporting under section 170(f)(8)(D).  The proposed rule would allow organizations to collect the donor’s name, address, and taxpayer identification number and report the contributions directly to the IRS using a specific-use information return.  The Treasury Department and the IRS received a substantial number of public comments in response to the notice of proposed rulemaking, questioning the need for donee reporting and expressing concerns about the collection and maintenance of taxpayer identification numbers.  In response to the comments, the Treasury Department and the IRS announced today that they would not implement the statutory exception to the contemporaneous written acknowledgment, and withdrew the notice of proposed rulemaking.

Sixth Circuit Finds Currency Option Contract Complied With Mark-to-Market Provisions of the Code:  Today, in Wright v. Commissioner, the US Court of Appeals for the Sixth Circuit reversed and remanded a US Tax Court opinion that disallowed the taxpayers’ losses on a transaction using a euro put option.  The IRS argued successfully before the Tax Court that a euro put option was not a foreign currency contract, and therefore that the taxpayers’ claimed losses should be disallowed.  The Sixth Circuit stated that this interpretation was contrary to the plain language of the statute.  The court also stated that even though the IRS’s interpretation might constitute good tax policy, that alone was insufficient to reform the statutory language for two reasons: (1) it could “unintentionally permit other tax-avoidance schemes” and (2) the IRS could challenge the transaction under the economic substance doctrine.  The Sixth Circuit referenced the codified economic substance doctrine in its opinion, but did not specify whether the Tax Court should consider the common law economic substance of the transaction (which occurred before the codification of the economic substance doctrine) on remand.  The Sixth Circuit’s opinion is available by clicking here.


Update on Affordable Care Act Information Reporting Requirements:  The first Affordable Care Act (ACA) information reporting season is close at hand!  To assist employers and insurers in complying with their filing requirements, the IRS recently issued Notice 2016-4, which extends certain filing dates and provides additional insight into what the IRS will consider for purposes of abating penalties for reasonable cause.  This Tax Alert examines Notice 2016-4 in greater detail.  For prior coverage of the ACA information reporting requirements and penalties, click here and here