Daily Tax Update - June 26, 2012: IRS Releases Revenue Procedure Providing Guidance and Sample Election Language on Section 83(b) Elections

IRS RELEASES REVENUE PROCEDURE PROVIDING GUIDANCE AND SAMPLE ELECTION LANGUAGE ON SECTION 83(b) ELECTIONS:  Today, the Service issued Revenue Procedure 2012-29, providing guidance on making a section 83(b) election for taxpayers who receive substantially nonvested property in connection with the performance of services.

  • Section 83(b) provides that, if property is transferred in connection with the performance of services, the service provider may elect to include in gross income as compensation for services the excess of the fair market value of the property over the amount paid, if any.
  • The guidance explains that, for section 83(b) purposes, the value of the property is measured at the time of transfer, even though such property is substantially nonvested, and no compensation will be includible in gross income when such property becomes substantially vested.
  • The guidance offers additional guidance on the tax consequences of a section 83(b) election, including upon subsequent sale or exchange of the property and forfeiture of the property before it is substantially vested.
  • The guidance also provides sample election language that satisfies the requirements of Treas. Reg. § 1.83-2 regarding the required content of a section 83(b) election.
  • Rev. Proc. 2012-29 is effective June 25, 2012.
  • The revenue procedure can be accessed here.
  • For additional information, contact - Aaron P. Nocjar - anocjar@steptoe.com

IRS SAYS OFFSHORE DISCLOSURE PROGRAMS EXCEED $5 BILLION:  Today, the IRS announced that its offshore voluntary disclosure programs have exceeded the $5 billion amount and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements.

  • IRS Commissioner Doug Shulman said, “We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore. People are finding it tougher and tougher to keep their assets hidden in offshore accounts." Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.
  • The IRS said that it “closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the US Justice Department of the appeal.” The IRS further stated, “That if the taxpayer fails to comply with this law and does not notify the US Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program (OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the US government has taken action in connection with their specific financial institution.”
  • Additional information can be accessed here and here.
  • For additional information, contact - Philip R. West - pwest@steptoe.com

NEW FILING COMPLIANCE PROCEDURES FOR NON-RESIDENT TAXPAYERS:  IRS Commissioner Shulman also announced the IRS will help some US citizens and others residing abroad who have not been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes.  The new procedure will go into effect on September 1, 2012.  According to the IRS, “To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action.  These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.  The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans).  In some circumstances, tax treaties allow for income deferral under US tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.   Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years.  Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.”

OECD REPORT ENCOURAGES CUTTING CORPORATE TAX RATE:  A report (Economic Survey of the United States 2012) released today by the Organization for Economic Cooperation and Development(OECD) urges the US to use government policy, including tax measures, to boost innovation and job creation, while reducing income inequality, and to address long-term financial stability.

  • The recommendations for reducing income inequality and combating poverty include, a “comprehensive approach to limiting tax expenditures that disproportionately benefit high earners…, for instance by limiting the marginal income tax rate at which deductions (such as for owner occupiers' mortgage interest payments) may be claimed and exclusions (such as for employer provided health insurance coverage) permitted to 28% as proposed in the Administration’s FY 2013 budget.” The report also states, “The unequal tax treatment of income from different asset classes increases inequality in some cases and distorts the allocation of capital.  Equalizing the effective tax rates on debt-financed corporate investment and on housing at the higher rate on equity-financed corporate investment while simultaneously lowering the corporate tax rate would reduce income inequality and improve the efficiency of investment.”
  • The report can be accessed here.

TAX REFORM HEARING POSTPONED:  The joint hearing scheduled for June 28 by the House Ways and Means and Senate Finance Committees to review the tax treatment of capital gains in the context of comprehensive tax reform has been postponed.

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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