Daily Tax Update - August 24, 2007

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS ON SEPTEMBER 4TH

IRS ISSUES FINAL REGULATIONS ELIMINATING COUNTRY-BY-COUNTRY REPORTING BY RICs: Yesterday, the IRS issued final regulations (T.D. 9357) that generally eliminate country-by-country reporting by a regulated investment company (RIC) to its shareholders of foreign source income that the RIC takes into account and foreign taxes that it pays.

  • The final rules only slightly modify the guidance the IRS proposed in September 2006.  The final regulations update Reg. § 1.853-1 to reflect statutory amendments providing that the foreign tax passthrough election is not applicable to taxes for which the RIC would not be allowed a credit under sections 901(j), (k), (l), or any similar provision.
  • The final regulations change in two ways the regulations that set forth requirements for a RIC seeking to make and notify shareholders of a foreign tax passthrough election.  First, the final regulations modify the required statements to shareholders under Reg. § 1.853-3(a) and (b).  Second, the final regulations extend various deadlines in Reg. § 1.853-3(b) to reflect statutory changes since the regulations were issued.
  • The final regulations also modify filing requirements under Reg. § 1.853-4.  The requirement to file statements with Forms 1099 and 1096 is eliminated, but the final regulations retain the general requirement that a RIC must file as part of its return a statement that elects the application of section 853 for the taxable year. The final regulations require that a RIC agree to provide certain information on foreign-source income received and foreign taxes paid. The final regulations specify how to provide the required information in Reg. § 1.853-4(d).
  • The regulations are applicable for RIC taxable years ending on or after December 31, 2007.  For reporting purposes, however, a taxpayer may rely on the current regulations for a taxable year ending on or after December 31, 2007, and beginning before August 24, 2007.

IRS ISSUES GUIDANCE REGARDING TENTATIVE CARRYBACK ADJUSTMENTS: Today, the IRS released the following related guidance concerning the tentative carryback adjustment rules:

  • Temporary regulations (T.D. 9355) and, by cross-reference, proposed regulations (REG-118886-06), clarify that for purposes of allowing a tentative adjustment, the IRS may credit or reduce the tentative adjustment by an assessed tax liability, whether or not that tax liability was assessed before the date the application for the tentative carryback was filed, and other unassessed tax liabilities in certain other circumstances.
  • Rev. Rul. 2007-51 holds that, pursuant to Code section 6402(a), the IRS may credit an overpayment against unassessed internal revenue tax liabilities that have been determined in a notice of deficiency sent to the taxpayer; and, pursuant to Code section 6411(b), the IRS may credit a decrease in tax resulting from a tentative carryback adjustment against unassessed internal revenue tax liabilities determined in a notice of deficiency sent to the taxpayer.
  • Rev. Rul. 2007-52 holds that, pursuant to Code section 6402(a), the IRS may credit an overpayment against unassessed internal revenue tax liabilities that have not been identified in a notice of deficiency sent to the taxpayer when the liabilities are identified in a proof of claim filed in a bankruptcy case; and, pursuant to Code section 6411(b), the IRS may credit a decrease in tax resulting from a tentative carryback adjustment against unassessed internal revenue tax liabilities that have not been identified in a notice of deficiency sent to the taxpayer when the liabilities are identified in a proof of claim filed in a bankruptcy case.
  • The IRS also issued Rev. Rul. 2007-53, that revokes Rev. Rul. 78-369 because it was determined to be inconsistent with the newly released regulations under section 6411.

IRS E-FILE DEADLINE APPROACHES: Yesterday, the IRS reminded taxpayers that all corporations with assets over $10 million that file 250 or more returns annually now must file electronically.

  • September 17 is the deadline for calendar-year corporate return filers that requested extensions.  The IRS urged these corporations to be aware that they must e-file their Forms 1120 and 1120S.

TRANSFER PRICING DOCUMENTATION DEADLINE ON SEPTEMBER 15, 2007 FOR CALENDAR YEAR TAXPAYERS:  To avoid penalties, taxpayers should have appropriate documentation of their transfer pricing methodologies and results by the time they file their tax returns.  For calendar year taxpayers, this means that the documentation must be completed by September 15.  IRS agents have been instructed to look critically at this documentation, so companies may want to reconsider the standards they have used in the past for determining whether their documentation is rigorous and specific enough.  Steptoe's transfer pricing group is available and particularly well-situated to assist with that work.  Click here for more information

STEPTOE’S UK AUGUST 2007 TAX LAW UPDATE CAN BE ACCESSED VIA:
http://www.steptoe.com/assets/attachments/3109.pdf

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As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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