Daily Tax Update - January 19, 2017: Senate Finance Committee Holds Confirmation Hearing for Treasury Secretary Nominee

Senate Finance Committee Holds Confirmation Hearing for Treasury Secretary Nominee:  On January 19, the Senate Finance Committee held a hearing on the nomination of Steven Mnuchin to be Secretary of the Treasury.  Mnuchin did not offer many specifics on what a Trump tax reform plan might encompass, but did commit to generating jobs, limiting regulations, and lowering taxes on middle income Americans and small business—all while not adding to the deficit.  He also vowed to “make America the best place to do business.”  Mnuchin also expressed concern about the steep reductions in IRS headcount, suggesting staffing might need to increase to improve revenue collection.  

IRS Releases Guidance on US Source Dividend Equivalents:  Today the Treasury Department and the IRS released final and temporary regulations (T.D. 9815) under sections 871(m) and 1441, addressing withholding tax on payments that are contingent upon or determined by reference to US source dividend payments (dividend equivalents).  The regulations generally adopt the proposed regulations released in 2015, with some changes, including with respect to the definition of “broker,” determining delta with respect to simple contracts and options listed on a regulated exchange, the amount and timing of a taxpayer’s liability, and the treatment of qualified indices.  The regulations also provide guidance on the qualified derivatives dealer regime and the party responsible for determining delta.  

The text of the temporary regulations also serves as the text of proposed regulations.

IRS Releases Final Rules on Qualifying Income From Certain PTP Activities:  Today the Treasury Department and the IRS released final regulations (T.D. 9817) under section 7704(d)(1)(E) relating to the qualifying income exception for publicly traded partnerships (PTPs).  Section 7704(a) provides that, as a general rule, PTPs will be treated as corporations for federal income tax purposes.  Section 7704(c) provides an exception to this rule if 90% or more of a PTP’s gross income is “qualifying income.”  Specifically, the final rules define the activities that generate qualifying income from exploration, development, mining or production, processing, refining, transportation, and marketing of minerals or natural resources.  

IRS Releases Guidance on Country-by-Country Reports:  Today the Treasury Department and the IRS released Revenue Procedure 2017-23, which describes the process for filing Form 8975, Country-by-Country Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information, by ultimate parent entities of US multinational enterprise groups for reporting periods that begin on or after January 1, 2016 but earlier than June 30, 2016, the applicability date of the final regulations implementing country-by-country reporting, Treas. Reg. §1.6038-4.  The revenue procedure discusses the timing and manner of these early filings.

IRS Releases Updated Foreign Partnership and Foreign Trust Agreements:  Today the Treasury Department and the IRS released Revenue Procedure 2017-21, which contains the updated withholding foreign partnership (WP) agreement and withholding foreign trust (WT) agreement.  In general, the WP and WT agreements allow a foreign partnership or foreign trust to assume the withholding and reporting obligations under chapters 3 (provisions relating to withholding of tax on nonresident aliens and foreign corporations) and 4 (provisions under the Foreign Account Tax Compliance Act, or FATCA) of the Internal Revenue Code for certain payments of US source income (such as interest, dividends, and royalties) made to its direct partners, beneficiaries, or owners, and in some cases, persons holding interests in the partnership or trust through one or more foreign intermediaries or flow-through entities (indirect partners).  The revenue procedure also provides information on submitting an application or request for renewal of a WP or WT agreement. 

Treasury Weighs In On Cash-Flow Taxes:  Economists in the Office of Tax Analysis issued a working paper recently examining cash flow taxes (the basic approach of the GOP blueprint business tax proposal).  The paper models a destination-based cash flow tax over the period 2004-2013 and concludes that “this style of reform is promising.”  The paper outlines, however, a “daunting” list of issues that remain to be resolved, but suggests that “the findings of this paper should provide optimism to policy makers that tackling these issues is a worthwhile undertaking.”    

Miscellaneous Guidance:  
Revenue Procedure 2017-19 provides a safe harbor under which the IRS will respect certain Energy Savings and Performance Contract Sales Agreements (ESPCs) for the sale of electricity by an energy service company (ESCO) to a federal agency (FA) as a service contract under section 7701(e)(3).

Notice 2017-16 provides guidance regarding the health coverage tax credit (HCTC) under section 35.  Specifically, the notice extends the due date for the election to claim the HCTC for eligible coverage months in taxable years beginning on or after June 29, 2015 and before January 1, 2017.