TaxClinic
Practical
Advice
on Current Issues
.
Editor:
David J. Kautter
Partner
Ernst & Young LLP
Washington, DC
IN THIS
DEPARTMENT
Accounting
Methods & Periods
Accounting methods
The AJCA contains several provisions that affect accounting
methods. Some of the key changes are described here. |
Bonus
depreciation extension for certain aircraft (excluding the
transportation industry)
Class lives
for utility grading costs.
15-year
recovery period for certain qualified leasehold improvements
15-year
recovery period for certain restaurant property
Income-forecast method modifications for film industry
Increased Sec.
179 expense limits extended two years
Organization
costs and start-up costs amortized over 15 years
Professional
sports franchises amortizable under Sec. 197
Seven-year
recovery period for motorsports racetrack complexes
Corporations &
Shareholders
Corporate formation and organization
In the corporate arena, the AJCA affirms Treasurys authority to
issue consolidated return regulations that treat corporations
differently than they would be treated in a separate return
context. It also refines the definition of preferred stock for
purposes of the nonqualified preferred stock rules, changes the
method for calculating estimated taxes for Sec. 338(h)(10)
transactions and modifies the treatment of transfers to creditors
in certain divisive reorganizations. Finally, it also makes Sec.
357(c) inapplicable to acquisitive D reorganizations.. |
Affirmation
of consolidated return regulation authority
Estimated
taxes for Sec. 338(h)(10) transactions
Modified
treatment of transfers to creditors in certain divisive reorgs.
Nonqualified
preferred stock
Sec. 357(c)
inapplicable to acquisitive D reorgs.
Foreign Income &
Taxpayers
Repeal and replacement of the ETI regime
To comply with international trade rules, the AJCA repeals the
current tax treatment for extraterritorial income. It also
replaces these provisions with a domestic manufacturing deduction
that has wide-ranging implications for U.S. businesses involved in
international commerce, manufacturing and several other industries
identified in the legislation; see News
Notes. |
ETI exclusion
repeal: transition relief
Partners &
Partnerships
Partnerships
The AJCA contains many provisions of special interest to
partnerships. These new rules affect the calculation and
allocation of partnership income and ownership interests for many
businesses operating under subchapter K. |
Consistent
amortization of periods for intangibles
Disallowance
of certain partnership loss transfers
Net income
from PTPs treated as qualifying RIC income
No basis
reduction under Sec. 734 in stock held by partnership in corporate
partner
Recognition
of COD income realized on satisfaction of debt with partnership
interest.
Procedure &
Administration
Tax shelters
The AJCA includes numerous provisions affecting reportable
transactions. The legislation imposes significant penalties for
failure to disclose these transactions, regardless of whether
there is any underpayment of tax. It extends the statute of
limitations on assessment for undisclosed listed transactions
until at least one year after the required information is provided
to the IRS by the taxpayer or in response to a list-maintenance
request by the IRS. New provisions also increase accuracy-related
penalties for certain undisclosed reportable transactions, and
impose new limits on a taxpayers ability to avoid such penalties
by relying on reasonable cause. |
Disclosure of
reportable transactions: tax shelter registration
Modification
of actions to enjoin certain conduct related to tax shelters and
reportable transactions
Modifications
of substantial understatement penalty for nonreportable transactions
Modified
accuracy-related penalty for listed transactions and other reportable
transactions.
Modified
penalty for failing to maintain investor lists
Penalties on
tax shelter promoters
Penalty for
failing to disclose reportable transactions
Penalty for
failing to report interests in foreign financial accounts
Regulation of
individuals practicing before Treasury
SOL for
unreported listed transactions
Tax shelter
exception to confidentiality privileges relating to taxpayer
communications
Unless otherwise indicated, contributors are members of or
associated with Ernst & Young LLP.
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