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NewsNotes Lesli S. Laffie, J.D., LL.M. Foreign Trust
Information Reporting • Pension Preservation • Determining FMV • EINs • Sec. 355 Rulings • ISOs • Collapsible
Corporations (Box) AICPA Activities Foreign Trust Information Reporting The AICPA has commented to the IRS on Forms 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner, and 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The comments urge the IRS to:
The AICPA has submitted comments to Congress supporting The Pension Preservation and Savings Expansion Act of 2003; many of the provisions streamline and simplify the pension plan rules. Among others, the AIPCA applauds the provisions that expand pension plan coverage, permit rollovers to enhance retirement plan portability, improve the compliance resolution system, correct inconsistencies and improve distribution rules. However, the AICPA is concerned about provisions (1) used to calculate the exclusion percentage for lifetime annuity payments; (2) allowing additional nonelective contributions or midyear changes in savings incentive match plans for employees (SIMPLEs); (3) permitting reverse-match salary reduction contributions to simple employee plans (SEPs); and (4) requiring a quarterly notice to qualified plan participants and beneficiaries. For more information, see www.cpa2biz.com/ResourceCenters/Tax/Employee+Benefits/Portman_Cardin.html. From the IRS Rev. Proc. 2003-51 sets forth guidelines that taxpayers and the IRS can use in making fair market value (FMV) determinations for inventory items acquired when a taxpayer purchases the assets of a business for a lump sum, or a corporation acquires the stock of another and makes a Sec. 338 election. The procedure offers three basic methods a taxpayer may use to determine the inventory’s FMV: the replacement-cost method, the comparative-sales method and the income method. Generally, the procedure is effective for tax years ending after April 24, 1977. According to IR 2003-77, the IRS now allows businesses to obtain employer identification numbers (EINs) directly from its website. After the application form is completed online, the system issues an EIN that may be used immediately. The online process eliminates the need to send paperwork to the IRS, as well as the delay that may result from an incomplete application. Once a business has an EIN, it can file tax returns and may enroll in the Electronic Federal Tax Payment System to handle its payments. Businesses do not need to pre-register before requesting an EIN. The number issued is the business’s permanent EIN, unless the IRS finds that it has already issued an EIN for that business or if the principal officer’s name and Social Security number do not match Social Security records. In such cases, the IRS will void the number issued through the website and notify the business. A CPA may use the website at www.irs.gov to request EINs on a client’s behalf. The taxpayer must sign a copy of Form SS-4, Application for Employer Identification Number, and a statement authorizing the representative to receive the number online. The representative must keep both documents on file. The website describes the elements required for an authorization statement, which a preparer may print out for a client to sign. The online application process is not available to some EIN requestors, including Federal, state or local government agencies, Indian tribal governments, real estate mortgage investment conduits and taxpayers with addresses outside the U.S. For more information, go to www.irs.gov/smallbiz and click on the “Online Application—Form SS-4” link. Businesses may still obtain EINs by phoning (800) 829-4933 from 7:30 a.m. to 5:30 p.m. (local time), or by mailing or faxing Form SS-4, as provided in the form’s instructions. Rev. Proc. 2003-48 modifies the procedure for obtaining a letter ruling on the tax effect of a proposed or completed distribution of the stock of a controlled corporation. Under the new procedure, the IRS will not determine whether (1) a proposed or completed distribution is being carried out for one or more corporate business purposes, (2) the transaction is used principally as a device or (3) the distribution and an acquisition are part of a plan. Taxpayers seeking a ruling must submit representations as to the business purpose and device requirements and whether there is a plan under Sec. 355(e)(2)(A)(ii). The request for a letter ruling (including representations) must be accompanied by a signed and dated penalty-of-perjury statement. This pilot program applies to ruling requests postmarked (or, if not mailed, received) after Aug. 8, 2003. Regulations The IRS issued new proposed regulations (REG-122917-02) on incentive stock options (ISOs), under Secs. 421, 422 and 424, retaining some of the rules issued in 1984 and expanding on others. There are also some changes to existing final regulations under Secs. 421 and 424. The proposed regulations would apply 180 days after publication of final regulations. Taxpayers may rely on the proposed rules for any ISO granted after June 9, 2003. The reduction in the top tax rate on capital gains to 15% by the Jobs and Growth Tax and Revenue Reconciliation Act of 2003, makes ISOs more valuable than ever to employees who meet the applicable holding periods and for companies to attract and retain talent.
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