NewsNotes

Lesli S. Laffie, J.D., LL.M.

Small-Business Threshold • Aggregation of Stock • Federal Tax Liens • Important Dates in U.S. Tax History (Chart)

From the IRS

Small-Business Threshold

On Oct. 1, 2001, the IRS intends to raise the asset threshold used to measure a small or large business from $5 million to $10 million. This threshold determines whether a business will be considered a customer of the IRS's Small Business/Self-Employed (SB/SE) Division or a customer of its Large and Mid-Size Business (LMSB) Division. Raising the asset threshold by $5 million will allow an additional 106,000 taxpayers to work with the resources available in SB/SE.

This "midstream adjustment" in operational policy reflects the IRS's ability to match taxpayer services with taxpayer needs.

According to an IRS Organizational Blueprint (Document 11052) (Blueprint), LMSB was to have been comprised of about 210,000 corporate taxpayers with assets over $5 million. It stated that LMSB taxpayers "require a dedicated IRS business unit to address sophisticated tax planning capabilities and complex filing requirements."

SB/SE is a much larger division than LMSB; it services approximately 7 million taxpayers with assets of no more than $5 million. The Blueprint noted that SB/SE taxpayers often face some of the complicated tax issues of large corporations, but usually do not have the financial resources to employ tax professionals. The specialized services of SB/SE emphasize working with small businesses to educate them and to develop less burdensome and more practical means of complying with the Code.

Regulations

Aggregation of Stock

Final regulations (TD 8949) address aggregation of stock ownership for members of a consolidated group. Regs. Sec. 1.1502-34 generally provides that, for consolidated return purposes, the stock ownership of all members of a consolidated group in another corporation is aggregated in determining the application of certain Code provisions. That regulation has now been amended to conform to a technical correction enacted in Section 311(c) of the Community Renewal Tax Relief Act of 2000 (2000 Act); a regulation under Sec. 732 has also been added to reflect that technical correction.

The regulations implement the statutory clarification that the special aggregate stock ownership rules apply for purposes of Sec. 732(f), which covers basis adjustments to assets of a controlled corporation received in a partnership distribution.

Sec. 732(f) was enacted by Section 538 of the Ticket to Work and Work Incentives Improvement Act of 1999 (1999 Act). The statute generally provides that, if (1) a corporate partner of a partnership receives a distribution from that partnership of stock in another corporation, (2) the corporate partner has control of the distributed corporation immediately after the distribution or at any time thereafter and (3) the partnership's adjusted basis in the stock immediately before the distribution exceeded the corporate partner's adjusted basis in the stock immediately after the distribution, the excess will reduce the basis of the property held by the distributed corporation at such time.

Under the technical correction made to Section 538 of the 1999 Act by Section 311(c) of the 2000 Act, the Regs. Sec. 1.1502-34 rule, aggregating stock ownership for Sec. 332 purposes (relating to a complete liquidation of a subsidiary that is a controlled corporation), also applies for Sec. 732(f) purposes. Because Section 311(c) took effect as if it had been included in the 1999 Act, the effective date provisions of Section 538(b) of the 1999 Act apply to the final regulations.

The amendments made by Section 538(a) apply to distributions made after July 14, 1999. For a corporation that was a partner in a partnership as of that date, the amendments made by Section 538(a) apply to distributions made (or treated as made) to that partner from that partnership after June 30, 2001. For distributions made after Dec. 17, 1999 and before July 1, 2001, the preceding rule will not apply unless that partner elects to have the rule apply to the distribution on his tax return for the year in which the distribution occurs.

Federal Tax Liens

Final regulations (TD 8951) relate to the withdrawal of notices of Federal tax liens in certain circumstances and reflect law changes made by the Taxpayer Bill of Rights 2 (TBOR2) to Sec. 6323. TBOR2 authorized the IRS to withdraw tax lien notices under certain conditions. The regulations apply after June 21, 2001 to withdrawals of notices of Federal tax liens occurring after that date, regardless of when the notice was filed.

Under the final rules, the IRS may withdraw a notice of Federal tax lien under certain conditions. A notice of Federal tax lien is withdrawn by filing a notice of withdrawal in the office in which the notice was filed and providing the taxpayer with a copy. On a taxpayer's written request, the IRS will promptly make reasonable efforts to notify any credit reporting agency and any financial institution or creditor identified by the taxpayer of the withdrawal. The withdrawal of a notice of Federal tax lien will not affect the underlying lien.

The IRS has the authority to withdraw a notice of Federal tax lien if any of the following exists:

1. The filing of the notice was premature or otherwise not in accordance with Treasury's administrative procedures.

2. The taxpayer has entered into an installment agreement under Sec. 6159 to satisfy the liability for which the lien was imposed, unless the agreement's terms provide that the notice will not be withdrawn.

3. The withdrawal will facilitate collection of the tax liability for which the lien was imposed.

4. The withdrawal of notice is in the best interests of the taxpayer, as determined by the taxpayer or the National Taxpayer Advocate (or her delegate), and the U.S., as determined by the IRS.