Daily Tax Update - June 9, 2016: Medtronic Prevails in Transfer Pricing Case

Medtronic Prevails in Transfer Pricing Case:  Today, the US Tax Court issued a memorandum opinion in Medtronic Inc. v. Commissioner, holding in favor of Medtronic in a major transfer pricing decision that involved more than $1 billion in assessed deficiencies.  The Tax Court held, in part, that the IRS did not give “appropriate weight” to the role of Medtronics’ Puerto Rico affiliate and that Medtronic had met its burden of showing that the IRS’s allocations were arbitrary, capricious, or unreasonable.

Treasury, IRS Issue Final Regulations Regarding Discharge of Indebtedness Income:  Today, Treasury and the IRS issued final regulations (TD 9771) under section 108 relating to the exclusion from gross income of discharge of indebtedness income of a grantor trust or an entity that is disregarded as an entity separate from its owner.  These regulations apply to discharge of indebtedness income occurring on or after June 10.

According to the preamble, the purpose and scope of these regulations is primarily limited to defining the term “taxpayer” for purposes of applying the bankruptcy and the insolvency exclusions from gross income of discharge of indebtedness income of a grantor trust or disregarded entity.  The final regulations provide that, for purposes of applying sections 108(a)(1)(A) and (B) to discharge of indebtedness income of a grantor trust or a disregarded entity, the term “taxpayer,” as used in sections 108(a)(1) and (d)(1) through (3), refers to the owner of the grantor trust or the disregarded entity.  The regulations also provide that, if a partnership holds an interest in a grantor trust or disregarded entity, the applicability of sections 108(a)(1)(A) and (B) to the discharge of indebtedness income is tested by looking to each partner to whom the income is allocable.  

Sen. Chuck Grassley Sends Letter to IRS Regarding Tax-Exempt Hospital Accountability Measures:  Today, Senator Chuck Grassley (R-IA) released a letter, which asked IRS Commissioner John Koskinen for updates on implementing tax-exempt hospital accountability measures, citing two instances of non-profit hospitals in the news for aggressively suing patients.  In the letter, Senator Grassley wrote: “[W]e can both agree that many charitable hospitals perform good work on behalf of the communities that they service.  However, some charitable hospitals get as close to the line as possible, while others callously breach it.  It is important that Congress, via its oversite role, and the IRS ensure that charitable hospitals are functioning as intended.”

House Appropriations Committee Approves Bill Cutting IRS Funding:  Today, the House Committee on Appropriations approved a spending bill that would allocate $10.9 billion to the IRS for fiscal year 2017.  For fiscal year 2016, the IRS received $11.23 billion in funding.  A draft of the bill (pre-markup) is available here.