Daily Tax Update - August 6, 2014: Treasury Exploring Administrative Action to Curtail Inversions

Treasury Exploring Administrative Action to Curtail Inversions:   A Treasury Department spokesperson said yesterday that Treasury is considering what options could be taken, without Congressional action, to limit US companies from entering into inversion transactions.  “There are limits to what Treasury can do without action by Congress, and legislation is the only way to fully address inversions,” the spokesperson said. “Nonetheless, Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place, to at least provide a partial fix.”

The announcement follows an article published in Tax Notes on July 28 by Stephen E. Shay, a former Treasury official and professor at Harvard Law School, arguing that Treasury could take unilateral action to limit the benefits of inversions by adopting regulations under Sections 385, 956(e), 7701(l), 7874(g), and 7805.  Mr. Shay’s proposals would (i) reclassify as equity certain debt issued by an expatriated US corporation to a foreign member of its expanded affiliated group that is not a controlled foreign corporation (CFC) and (ii) subject certain untaxed CFC earnings lent to a new foreign parent or to non-CFC members of the group to current taxation.  On July 31, Sander M. Levin (D-MI), the ranking member of the House Ways and Means Committee, released a discussion draft of the Stop Corporate Earnings Stripping Act of 2014, containing proposals similar to Shay’s.  Rep. Levin made a statement yesterday evening in support of possible administrative action on inversions and said that he would also continue to pursue legislative options.

TIGTA Releases Report on IRS Verification of Taxpayer Information Under ACA:   The Treasury Inspector General for Tax Administration (TIGTA) publicly released a report yesterday describing an analysis of the accuracy of the IRS’s Income and Family Size Verification (IFSV) program in connection with the Affordable Care Act (ACA).  Under ACA, the IRS must verify certain information, including family size and income, for individuals who receive healthcare insurance through the exchanges established under ACA and who claim premium tax credits (PTC).  The IRS also must compute the maximum amount of the PTC that will be paid directly to insurance providers if the individual so elects.  TIGTA analyzed a sample of 101,018 IFSV requests, and determined that the IRS had correctly verified the information in 99.97 percent of such requests.  TIGTA also determined that the IRS calculations of PTC amounts were correct in each of 120,824 cases examined.

The report can be accessed here.