Overview of New Section 385 Regulations

The IRS has issued final and temporary regulations under Code Section 385. These provisions, intended to limit earnings stripping, will enhance the IRS’ ability to characterize related party ownership arrangements, purportedly established as debt, as equity instead.

One set of rules provides prerequisite requirements …

Recent News

18 Aug 2019

Proposed Regulations on Cross-Border Cloud Transactions and other Digital Content Transactions

Determining the source and character of transactions involving the Internet or digital items for U.S. income tax purposes is not always easy, given the paucity of IRS guidance on the subject. Treas. Regs. §1.861-18 is the exception, which addresses how to characterize transactions involving “computer programs,” but that is as far as it goes.

In an effort to bring clarity and guidance to this exploding area of commerce, the IRS has issued proposed regulations under Treas. Regs. §1.861-18 and introduced a new proposed Treas. Regs. §1.861-19.

The proposals under Treas. Regs. §1.861-18 expand . . .

11 Aug 2019

District Court Strikes Regulation Defining Educational Organization Under Code §170(b)(1)(A)(ii)

EXECUTIVE SUMMARY: The U.S. District Court for the District of Minnesota ruled in favor of the Mayo Clinic and held that in determining whether an organization meets the definition of an educational organization under Code §170(b)(1)(A)(ii), the primary function test imposed by regulation is invalid.

FACTS: The Mayo Clinic sought to exclude debt-financed passive income from unrelated business income by qualifying as an organization described in Code §170(b)(1)(A)(ii). That provision describes an organization that is:

an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The Government acknowledged that the Mayo Clinic “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” However, the Government argued that the Mayo Clinic was not an “educational organization” within the meaning of the statute since the Clinic did not meet the primary function. . .

04 Aug 2019

IRS Sending Out Cryptocurrency Warning Letters

According to the IRS, cryptocurrency like Bitcoin is treated as property, not money. Notice 2014-21. Therefore, taxpayers who use it buy things or convert it to dollars are treated as having sold it, and have to recognize gain or loss based on what they receive when the dispose of it compared to what they paid for it.

In 2016, only 802 individual income tax returns reported cryptocurrency transactions out of the 132 million filed electronically. The IRS is clearly concerned about a lack of knowledge and/or intentional lack of compliance in this area. Late last month, it announced it is sending 10,000. . .

15 Jul 2019

Wallace v. Comprehensive Personal Care Services, Inc.

By Jenna G. Rubin

This decision highlights the disconnect between the Appellate Courts and the reality of practicing guardianship law. Here, prior to an incapacity proceeding, the court in a related trust matter entered a protective order dealing with the dissemination of medical records. Later, prior to filing for guardianship, the AIP’s son sought an order from the court allowing him to attach those medical records to his petition to determine incapacity. The trial court denied his request.

15 Jul 2019

Mullins v. Mullins

By Jenna G. Rubin

This decision deals with the effect of an order determining homestead on a beneficiary’s interest in the homestead property. Specifically, the Court considered whether a consent to the entry of an order determining homestead, where that order does not properly lay out the ownership interests in the property, is enough to actually alter the parties ownership interests. The Court held that it did not.

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