Daily Tax Update - March 31, 2016: IRS Adds Three Countries to Automatic Exchange List

IRS Adds Three Countries to Automatic Exchange List:  Today, the IRS issued Revenue Procedure 2016-18 to add to the list of countries with which the Treasury Department and the IRS have deemed it appropriate to have an automatic exchange relationship regarding bank deposit interest information collected on certain nonresident alien individuals under Treasury regulation sections 1.6049-8(a) and 1.6049-4(b)(5). These three countries, Azerbaijan, Jamaica, and the Slovak Republic, have recently cleared a safeguards assessment for sharing of information under the Foreign Account Tax Compliance Act (FATCA).  The list of countries now totals 37. 

2015 Advance Pricing Agreement Report Issued:  The Treasury Department has issued its annual report on statistics, trends, and structures in Advance Pricing Agreements (APA) and the Advance Pricing and Mutual Agreement Program (APMA) for calendar year 2015.  This report is released pursuant to the Ticket to Work and Work Incentives Improvement Act of 1999, which requires the Treasury Department to inform the public on the activities of the APA and APMA programs.


Recent Challenges to Energy Tax Credit Transactions Highlight Risks for Similar Transactions:  In Chief Counsel Advice (CCA) 20161101F, dated December 3, 2015 and released to the public on March 11, 2016, the IRS advised that the taxpayer was not entitled to a tax credit under Section 45 because the taxpayer was not a bona fide partner in the business.  Although the CCA memorandum is heavily redacted, the transaction involved an investment in a limited liability company (LLC) taxed as a partnership, which was formed to own and operate a facility for the production of refined coal.  Under the LLC agreement, the taxpayer was obligated to make future investments that were contingent on the amount of coal produced.  In addition, there was an indemnification provision requiring indemnification of lost tax credits and deductions, and, if a “tax event” occurred, members with an aggregate threshold interest could suspend coal production.  The promotional materials quantified the amount that potential investors would pay for tax credits.  Finally, there was no mark-up on the sale of the refined coal to the utility, so the IRS said there was no possible return on investment aside from the tax credits.  For more in-depth coverage, click here.