Daily Tax Update - June 16, 2009

IRS ISSUES REVISED PROCEDURE TO OBTAIN CONSENT TO TREAT INTERCOMPANY TRANSACTIONS ON A SEPARATE ENTITY BASIS:  Today, the IRS issued Rev. Proc. 2009-31, which modifies and supersedes Rev. Proc. 97-47. Rev. Proc. 2009-31 provides the procedures by which taxpayers may obtain consent under Treas. Reg. § 1.1502-13(e)(3) to treat an intercompany transaction on a separate entity basis. Rev. Proc. 2009-31 also provides the procedures for obtaining consent to change from separate entity reporting to single entity reporting where consent to report on a separate entity basis was not previously obtained. Rev. Proc. 2009-31 is effective for taxable years ending on or after July 6, 2009.

  • Rev. Proc. 2009-31 provides that the IRS will not grant consent where the effect on consolidated taxable income (CTI) or consolidated tax liability (CTL) of treating intercompany transactions on a single-entity vs. a separate-entity basis exceeds 5% for the consent year, or where the average effect on CTI or CTL exceeds 5% for the two preceding taxable years.   
  • Rev. Proc. 97-47 did not include CTL as a factor for determining whether the IRS will grant consent. CTL was apparently added in order to account for items that do not affect CTI but affect CTL, such as foreign tax credits. Rev. Proc. 97-47 also provided for a more lenient threshold of 10% in determining whether the IRS will grant consent rather than the 5% threshold in Rev. Proc. 2009-31. 
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com.  

IRS COMMISSIONER ISSUES STATEMENT ON EMPLOYER-PROVIDED CELL PHONES: Today, IRS Commissioner Shulman released the following statement regarding employer-provided cell phones. Shulman said, “This month, the Internal Revenue Service asked for comments on ways to simplify compliance with rules related to employer-provided cellular telephones. The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently. Some have incorrectly implied that the IRS is ‘cracking down’ on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals.” Shulman added, “Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses. Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.”

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
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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