Daily Tax Update - February 28, 2005

IRS, Treasury Amend Section 817 Diversification Look - Through Regulations
Today, the IRS and Treasury Department issued final regulations that delete portions of the regulations issued under Code section 817 that apply a look-through rule to assets of a nonregistered partnership for purposes of satisfying the Code section 817(h) diversification requirements. Specifically, the regulations remove paragraphs 1.817- 5(f)(2)(ii) and (g) Example 3. In addition, the regulations make conforming changes to modify the definition of "security" and certain examples contained in the section 1.817.5 regulations. The Service notes that it did not adopt several comments that had been made concerning the proposed regulations.

  • In a press release, the Treasury Department stated that "The regulation, together with other guidance previously issued, will prevent taxpayers from turning otherwise taxable investments in hedge funds and other entities into tax-deferred or tax-free investments by purchasing the investments through a life insurance or annuity contract."
  • For additional information contact Arthur L. Bailey via email, J. Walker Johnson via email, or Susan H. Serling via email.
  • The regulations can be accessed here.     

IRS Releases List of 2005 "Dirty Dozen" Tax Scams
Today, the IRS announced its annual list of "notorious" tax scams, called the "Dirty Dozen." IRS Commissioner Mark Everson said, "The Dirty Dozen is a reminder that tax scams can take many forms. Don’t be fooled by false promises peddled by scam artists. They’ll take your money and leave you with a hefty tax bill."

  • The "Dirty Dozen" includes: trust misuse, frivolous arguments, return preparer fraud, credit counseling agencies, "claim of right" doctrine, "no gain" deduction, corporation sole, identity theft, abuse of charitable organizations and deductions, offshore transactions, zero return, and employment tax evasion.
  • Additional information can be accessed here.     

Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice