Daily Tax Update - November 16, 2016: Treasury, IRS Issue Correction to Final and Temporary Regulations on Partnership Liabilities and Disguised Sales

Treasury, IRS Issue Correction to Final and Temporary Regulations on Partnership Liabilities and Disguised Sales:  Today, Treasury and the IRS issued a correction to the preamble of final and temporary regulations (T.D. 9788) issued in October that provide rules concerning (i) how liabilities are allocated for purposes of section 707 and (ii) when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability under section 752.  The correction provides a clarification of how the liability allocation rules should work for purposes of disguised sales analyses under Treas. Reg. § 1.707-5.  The clarification suggests that, for purposes of Treas. Reg. § 1.707-5, a partner is allocated a partnership liability only to the extent of the lesser of (i) the partner’s share of partnership profits and (ii) the partner’s share of such liability under the normal section 752 debt sharing rules.  

IRS Advisory Council Issues 2016 Annual Report:  Today, the IRS Advisory Council (IRSAC) held its annual public meeting and released its annual report for 2016 to IRS Commissioner John Koskinen.  IRSAC’s primary purpose is to provide an organized public forum for the Commissioner, senior IRS executives, and representatives of the public to discuss relevant tax administration issues.  IRSAC’s 2016 report makes several recommendations on a broad range of issues and concerns, including: evaluating the effects of penalties on voluntary compliance; promoting confidentiality of treaty-exchanged information; improving fraud prevention through individual taxpayer and business master file authentication; enhancing the IRS2Go mobile application and online accounts; and revising and updating Circular 230.

Fifth Circuit Holds Tax Court Applied Incorrect Definitions of ‘Deposits’ and ‘Loans’ in MoneyGram Case:  In Moneygram Int’l, Inc. v. Commissioner, an unpublished opinion filed on November 15, the US Court of Appeals for the Fifth Circuit determined that the US Tax Court applied incorrect definitions of “deposits” and “loans” in analyzing whether MoneyGram was a “bank” under section 581.  On its 2007 and 2008 tax returns, MoneyGram had taken the position that it met the definition of a “bank” under section 581 and deducted its capital losses against its ordinary income under section 582.  While the Tax Court held that MoneyGram was not a “bank” as defined by section 581, the Fifth Circuit has now vacated the Tax Court’s order and remanded the case for reconsideration.  

PANA Committee Concludes Public Hearing on Money Laundering, Tax Avoidance, Tax Evasion:  Today, the European Parliament’s Committee of Inquiry Into Money Laundering, Tax Avoidance and Tax Evasion (PANA Committee) concluded its public hearing to investigate “alleged contraventions and maladministration in the application of [European] Union law in relation to money laundering, tax avoidance and tax evasion.”  At today’s hearing, the PANA Committee heard testimony from Nobel Prize-winning economist and former advisor to the Panamanian government Joseph Stiglitz who argued for a “comprehensive global approach” to combat secret tax structures.  The PANA Committee’s next meeting is scheduled for December 7.