Daily Tax Update - June 10, 2016: IRS Issues Guidance on Transfers of Property to Regulated Public Utilities

IRS Issues Guidance on Transfers of Property to Regulated Public Utilities:  Today, the IRS issued Notice 2016-36, which provides a safe harbor under which a transfer of property from an electricity generator to a regulated public utility, used to facilitate the transmission of electricity over the utility’s transmission system, will not be treated as income under section 118.  Steptoe will have further analysis in the following week. 

House Democrats Release Letter Defending the IRS’s Ability to Issue Guidance on 501(c)(4) Organizations:  Democratic Caucus Chairman Xavier Becerra (D-CA)—along with 42 House Democrats—released a letter, dated June 8, which expresses concern regarding the inclusion of a rider in the FY 2017 Financial Services and General Government Appropriations bill that would limit the ability of the IRS to issue guidance on actions by section 501(c)(4) organizations that constitute political activity.  The letter “strongly urge[s]” the House Appropriations Committee “to strike the 501(c)(4) rider from all future funding bills.”  According to the letter, “Congress should not use an appropriations measure to impede the IRS’s legal authority to improve upon this area of the law.  Efforts to impede the IRS’s ability to do its job ultimately harm American taxpayers and have no place in the appropriations process.”

The proposed rider is similar to the rider contained in the 2016 Consolidated Appropriations Act.  The 2016 Consolidated Appropriations Act limited the ability of the IRS “to issue, revise, or finalize” guidance “not limited to a particular taxpayer relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4)” for  FY2016.  The current appropriations bill would impose an identical ban for FY2017.

House Passes Legislative Branch Appropriations Bill:  Today, the House passed a bill (H.R. 5325), by a vote of 233 to 175, that provides appropriations for the legislative branch for fiscal year 2017.  The bill allocates $10.1 million in funding to the Joint Committee on Taxation.  

IRS Announces Winners of ‘Tax Design Challenge’:  Today, the IRS announced the winners of its first crowdsourcing competition, titled the “Tax Design Challenge.”  The three-week competition invited the public to imagine the taxpayer experience of the future and specifically design an online experience that better organizes and presents a person’s tax information.  The goal was to make it easier for a person to manage their tax responsibilities, and use their own tax data to make informed and effective decisions about their personal finances.  A list of the winners can be accessed here

Miscellaneous Guidance:  
Notice 2016-39 provides guidance as to whether payments received by an employee from a qualified retirement plan during phased retirement are amounts received as an annuity under section 72.

Revenue Procedure 2016-36 provides that Notice 2016-39 (described above) does not apply to amounts that are received from a non-qualified contract.

Revenue Ruling 2016-15 clarifies when a real estate developer may exclude cancellation of debt (COD) income under the qualified real property business indebtedness (QRPBI) exclusion in section 108(a)(1)(D).  In particular, this revenue ruling provides examples to clarify that QRPBI includes indebtedness relating only to depreciable property used in a taxpayer’s trade or business, and not property held for sale to customers.