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E-Filing Requirements • Nonprofit Organization Reform • SILO Legislation • Social Security White Paper • AICPA Business Valuation Standards (Box) • Intangibles Capitalization • “Exchange of Net Value” Requirement AICPA Activitiessli S. Laffie, J.D., LL.M. E-filing Requirements In Feb. 28, 2005 comments to the IRS, the AICPA recommended delaying electronic filing (e-filing) requirements for large corporations and exempt organizations. The comment letter states: “[w]e believe the implementation of mandatory e-File, as provided for by REG-130671-04, will require significant process and technology changes by practitioners, the business community, exempt organizations, and software developers....” The AICPA urged at least a one-year delay, “so that many unresolved issues impacting upon the program can be resolved to ensure a smooth transition.” Nonprofit Organization Reform On March 1, 2005, the AICPA offered additional input to a Senate Finance Committee (SFC) staff discussion document released last summer, which included proposals for reforms and best practices for not-for-profit organizations (NPOs). The AICPA’s Not-for-Profit Organizations Expert Panel and Exempt Organizations Taxation Technical Resource Panel worked with the SFC staff to help reach its objectives. According to the AICPA’s comments, there are primary concerns in the following areas:
The AICPA’s proposed comments and suggestions include audit thresholds, availability of financial information, auditor rotation and chief executive officer/chief financial officer certification. SILO Legislation On March 2, 2005, the AICPA wrote to Congress, requesting immediate relief under newly enacted Sec. 470, Limitation on deductions allocable to property used by governments or other tax-exempt entities. Under this so-called “sale-in-lease-out” (SILO) legislation, partnerships with tax-exempt (including foreign) partners are unsure whether losses should be reported as suspended or disallowed when the partnership did not engage in any SILO or other leasing transactions. Schedules K-1 are being held pending guidance. According to the comment letter, a cross-reference in Sec. 470 to Sec. 168(h)(6) is resulting in unintended consequences to certain partnerships with both taxable and exempt partners. Specifically, by referring to Sec. 168(h)(6), any partnership with an exempt entity as a partner and disproportionate allocations may have become subject to these loss disallowance rules, even though such partnerships have not entered into any leasing arrangements for their property and are not otherwise engaging in activities that implicate the concerns related to SILO transactions. The letter states: “We are not writing at this time to comment on the propriety of section 470 as it relates to partnerships. We want, however, to call your attention to the fact that this provision may unintentionally affect an overwhelmingly large number of partnerships in the United States across many industries.” New notice: According to Notice 2005-29, for partnerships and pass-through entities described in Sec. 168(h)(6)(E), the Service will not apply Sec. 470 to disallow losses on property treated as exempt-use property solely as a result of the application of Sec. 168(h)(6), for tax years beginning before 2005. Social Security White Paper On March 7, 2005, the AICPA released “Understanding Social Security Reform: The Issues and Alternatives.” The report’s goal is to foster informed discussion, by providing unbiased facts and analysis of the issues involved in reforming the Social Security system. The report is available at www.aicpa.org/members/socsec.htm. For technical questions about the report or Social Security, contact Carol Ferguson, AICPA Technical Manager, at (202) 434-9235 or cferguson@aipca.org.
Intangibles Capitalization Rev. Proc. 2005-17, which modifies Rev. Proc. 2005-9, waives the five-year prior-change scope limit for taxpayers seeking automatic consent to change an accounting method for the costs of acquiring or creating intangible assets. Rev. Proc. 2005-9 detailed steps taxpayers could take to obtain automatic consent to change accounting methods for capitalizing intangible assets during their second tax year ending after Dec. 30, 2003. However, it did not waive scope limits contained in Rev. Proc. 2002-9, including the five-year prior-change scope limit. Rev. Proc. 2005-17 modifies Rev. Proc. 2005-9 so that the five-year prior-change scope limit contained in Rev. Proc. 2002-9 does not apply. As an example, the IRS said that a taxpayer that, within the last five years (including the change year), applied for a change in accounting method and withdrew its request or had it denied, is not barred from obtaining automatic consent for the change under this procedure, provided all of its other requirements are met. The procedure is effective for a taxpayer’s second tax year ending after Dec. 30, 2003. Regulations “Exchange of Net Value” Requirement Proposed regulations (REG-163314-03, 3/9/05) provide guidance on corporate formations, reorganizations and liquidations of insolvent corporations. These rules require the exchange (or, in the case of Sec. 332, a distribution) of net value for the subchapter C nonrecognition rules to apply to the transaction. The regulations also provide guidance on determining when and the extent to which creditors of a corporation will be treated as its proprietors in determining whether continuity of interest is preserved in a potential reorganization. Finally, the regulations provide guidance on whether a distribution in cancellation or redemption of less than all of the shares one corporation owns in another meets Sec. 332’s requirements. |
