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NewsNotes Lesli S. Laffie, J.D., LL.M. AICPA Estate Tax Survey * S COD Income Passthrough * Circular 230 * IRA Required Distributions
AICPA Activities The AICPA Tax Division's Trust, Estate, and Gift Tax Technical Re-source Panel's Estate Tax Repeal Task Force developed and conducted a survey of member views toward the estate and gift tax system and its alternatives. A report analyzing the survey results is available on the AICPA Website at www.aicpa.org/members/div/ tax/membersurvey.htm. The report includes an analysis of members' views on:
For more information, contact Eileen Sherr at esherr@aicpa.org or Task Force Chair Roby Sawyers, at Roby_Sawyers@ncsu.edu ; see Sawyers, Abbin, Gardner and Sherr, "AICPA Members Respond to Estate Tax Survey," p. 174, this issue.
Court Decisions In David A. Gitlitz, TC Memo 1998-71, aff'd, 182 F3d 1143 (10th Cir. 1999), rev'd, Sup. Ct., 1/10/01, the Supreme Court healed a rift among the circuits, ruling that S corporation cancellation of indebtedness (COD) income is a passthrough item that increases shareholder basis. This issue has long plagued the courts and created great controversy in recent years. (For background, see Briskin, "Sup. Ct. to Decide Whether COD Income Increases Basis," TTA, September 2000, p. 632.) On the one hand, the Tenth Circuit concluded in Gitlitz that Sec. 108 excluded COD income does not pass through to shareholders under Sec. 1366(a) to increase stock basis, while the Third, Sixth, Seventh and Eleventh Circuits had all permitted a basis increase. The issue is important, because the increase in basis may allow the use of previously suspended S losses, or reduce gain (or produce a loss) on a corporation's liquidation or a stock sale. In a related development, the Supreme Court vacated and remanded two pro-IRS Sixth and Seventh Circuit opinions in which it had granted certiorari. Each case had concerned the identical issue decided in Gitlitz and conflicted with the Court's decision. Both Salvador A. Gaudiano, TC Memo 1998-408, aff'd, 216 F3d 524 (6th Cir. 2000), and William C. Witzel, 200 F3d 496 (7th Cir. 2000), were reversed and remanded. These developments are discussed in Anderson, Tax Clinic: "Supreme Court Allows S Basis Increase for Excluded DOI Income," p. 171, this issue.
Regulations Proposed regulations on Circular 230 (NPRM REG-111835-99) would clarify general standards of practice before the IRS and modify the standards for providing tax shelter advice. Two sections of the proposed regulations provide standards for tax shelter opinions. One section would apply to all shelter opinions that conclude that the Federal tax treatment of a tax-shelter item(s) is (are) more likely than not the proper treatment. The proposals would apply to all shelter opinions not governed by the new section that a practitioner knows (or has reason to believe) will be used or referred to by persons other than him to promote, market or recommend a tax shelter. The proposed regulations would exclude opinions on municipal bonds and qualified retirement plans. Comments are requested on whether the regulations should exempt other transactions from the requirements for shelter opinions and, if so, the types of other transactions that should be exempted. The current regulations govern advice by a practitioner on the Federal tax aspects of a tax shelter appearing or referred to in offering materials, or used or referred to in connection with sales promotion efforts and directed to persons other than the client who engaged the practitioner to give the advice. The proposed regulations would include a tax-shelter opinion that does not conclude that the Federal tax treatment of an item(s) is more likely than not the proper treatment and that a practitioner knows (or has reason to believe) will be used or referred to by persons other than he to promote, market or recommend the tax shelter to one or more taxpayers. The proposed regulations would govern shelter opinions prepared for use by third parties that are promoting the shelter, regardless of whether the promotional efforts are conducted publicly or privately. They would modify the definition of a material Federal tax issue and define a "shelter item" as an item of income, gain, loss, deduction or credit if it is directly or indirectly attributable to a tax shelter. Under the proposals, a practitioner who provides a written opinion on a tax-shelter item(s) would be required to comply with each's requirements. He would be required to inquire as to all relevant facts, be satisfied that the opinion takes account of all relevant facts and that the material facts are accurately and completely described in the opinion. Further, the opinion could not be based (directly or indirectly) on any unreasonable factual assumptions. The proposed regulations would permit a practitioner, when reasonable based on all the facts and circumstances, to rely on factual representations, statements, findings or agreements. A practitioner need not conduct an audit or independent verification of a factual representation, but reliance would not be permitted on factual representations that the practitioner knows (or has reason to believe) are unreasonable, incorrect, incomplete, inconsistent or implausible. A practitioner would be required to ascertain that all material Federal tax issues as to the tax-shelter item(s) have been considered and that all of the material Federal tax issues involving the reasonable possibility of a challenge by the IRS are fully and fairly addressed. The opinion would be required to state that the practitioner has considered the possible application to the facts of all potentially relevant judicial doctrines (including the step-transaction, business purpose, economic substance, substance-over-form and sham-transaction doctrines), as well as potentially relevant statutory and regulatory anti-abuse rules. The opinion would also be required to analyze whether the tax-shelter items are vulnerable to challenge under all such potentially relevant doctrines and anti-abuse rules. The proposed regulations would require that the opinion clearly provide the practitioner's conclusion as to the likelihood that a typical investor of the type to whom the tax shelter is (or will be) marketed will prevail on the merits of each material Federal tax issue that involves the reasonable possibility of a challenge by the IRS, or clearly state that the practitioner is unable to reach a conclusion on one or more issues. If an overall conclusion cannot be reached, the opinion would be required to fully describe why the practitioner cannot reach an overall conclusion. The proposals would require a practitioner to take reasonable steps to assure that any written materials or promotional efforts that distribute, reflect or refer to the tax-shelter opinion correctly and fairly represent its the nature and extent. The proposed regulations also would address reliance on others' opinions. New standards would apply to practitioners who provide shelter opinions that conclude that the Federal tax treatment of a tax-shelter item(s) is more likely than not the proper treatment. The proposals would apply to all such opinions, regardless of whether they were rendered in connection with promotional efforts conducted by a third party or directly to a potential shelter investor.
Proposed regulations (NPRM REG-130477-00, NPRM REG-130481-00) issued in a question-and-answer format provide guidance on minimum distributions from qualified plans, individual retirement plans, deferred compensation plans, annuity contracts, custodial accounts and retirement income accounts. The IRS structured the new proposals to make it easier for individuals (both plan participants and IRA owners) and plan administrators to understand and apply the minimum distribution rules. Major simplifications have been made to the rules, including the calculation of the required minimum distribution during the individual's life and the determination of a designated beneficiary for post-death distributions. The rules are proposed to be effective for determining required minimum distributions for calendar years beginning after 2001. |
