WASHINGTON — The Internal Revenue Service today issued frequently asked questions (FAQs) in FS-2024-22 related to educational assistance programs.

Taxpayers may exclude certain educational assistance benefits from their gross income if they are provided under an educational assistance program. Educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies and equipment. They also include principal or interest payments on qualified education loans made by the employer after March 27, 2020, and before Jan. 1, 2026 (unless extended by future legislation).

Taxpayers do not have to pay tax on the amount of benefits up to $5,250 per calendar year and their employer should not include the benefits in their wages, tips and other compensation shown in box 1 of their Form W-2.

However, it also means that any tax-free education expenses can’t be used as the basis for any other deduction or credit, including the lifetime learning credit.

If any benefits are received under a program that does not comply with the requirements for an educational assistance program under the Internal Revenue Code or if the benefits are over $5,250, the amounts may still be excluded if certain requirements are satisfied.

Amounts paid under an educational assistance program are generally deductible by the employer as a business expense.

Highest-risk claims being denied, additional processing to begin on low-risk claims; heightened scrutiny and review continues as compliance work tops $2 billion; IRS will consult with Congress on potential legislative action before making decision on future of moratorium

WASHINGTON — Following a detailed review to protect taxpayers and small businesses, the Internal Revenue Service today announced plans to deny tens of thousands of improper high-risk Employee Retention Credit claims while starting a new round of processing lower-risk claims to help eligible taxpayers.

“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel. “We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”

“This is one of the most complex credits the IRS has administered, and we continue to ask taxpayers for patience as we unravel this complex process,” Werfel added. “Ultimately, this period will help us protect taxpayers against improper payouts that flooded the system and get checks to those truly eligible.”

The review involved months of digitizing information and analyzing data since last September to assess a group of more than 1 million Employee Retention Credit (ERC) claims representing more than $86 billion filed amid aggressive marketing last year.

During this process, the IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit. Tens of thousands of these will be denied in the weeks ahead. This high-risk group includes filings with warning signals that clearly fall outside the guidelines established by Congress.

In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk. For this category of claims with risk indicators, the IRS will be conducting additional analysis to gather more information with a goal of improving the agency’s compliance review, speeding resolution of valid claims while protecting against improper payments.

At the same time, the IRS continues to be concerned about small businesses waiting on legitimate claims, and the agency is taking more action to help. Between 10% and 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to the last fall’s moratorium, the IRS will begin judiciously processing more of these claims.

The IRS anticipates some of the first payments in this group will go out later this summer. But the IRS emphasized these will go out at a dramatically slower pace than payments that went out during the pandemic period given the need for increased scrutiny.

As the additional IRS processing work begins at a measured pace, other claims will begin being paid later this summer following a final review. This additional review is needed because the submissions may have calculation errors made during the complex filings. For those claims with calculation errors, the amount claimed will be adjusted before payment.

The IRS also noted that generally the oldest claims will be worked first, and no claims submitted during the moratorium period will be processed at this time.

No additional action needed by taxpayers at this time; await further notification from the IRS

The IRS cautioned taxpayers who filed ERC claims that the process will take time, and the agency warned that processing speeds will not return to levels that occurred last summer. Taxpayers with claims do not need to take any action at this point, and they should await further notification from the IRS. The agency emphasized those with ERC claims should not call IRS toll-free lines because additional information is generally not available on these claims as processing work continues.

“These complex claims take time, and the IRS remains deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they’re eligible for a big payday. The reality is many aren’t,” Werfel said. “People may think they are on safe ground, but many are simply not eligible under the law. The IRS continues to urge those with pending claims to use this period to review the guideline checklist on IRS.gov, talk to a legitimate tax professional rather than a promoter and use the special IRS withdrawal program when there’s an issue.”

Werfel also cautioned taxpayers to be wary of promoters using today’s announcement as a springboard to attract more clients to file ERC claims.

“The whole world has changed involving Employee Retention Credits since the deepest days of the pandemic,” Werfel said. “Anyone applying for this credit needs to talk to a trusted tax professional and closely review the eligibility requirements, not someone playing fast and loose and trying to make a fast buck off well-meaning taxpayers. People need to be cautious of promoters trying to take advantage of today’s announcement to drive more business. People should remember the IRS continues to be very active in our compliance lanes on Employee Retention Credits.”

Steps taken since September 2023 when processing moratorium on new ERC claims began

During the ERC review period, the IRS continued to process claims received prior to September 2023. The agency processed 28,000 claims worth $2.2 billion and disallowed more than 14,000 claims worth more than $1 billion.

The ERC program began as a critical effort to help businesses during the pandemic, but the program later became the target of aggressive marketing well after the pandemic ended. Some promoter groups may have called the credit by another name, such as a grant, business stimulus payment, government relief or other names besides ERC or the Employee Retention Tax Credit (ERTC).

To counter the flood of claims being driven by promoters, the IRS announced last fall a moratorium on processing claims submitted after Sept. 14, 2023, to give the agency time to digitize information on the large study group of nearly 1 million ERC claims, which are made on amended paper tax returns. The subsequent analysis of the results during this period helped the IRS evaluate next steps, providing the IRS valuable information to change the way the agency will process ERC claims going forward.

The findings of the IRS review confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims.

The claims followed a flurry of aggressive marketing and promotions last year that led to people being misled into filing for the ERC. After the moratorium was put in place on Sept. 14, the IRS has continued to see ERC claims continuing to come in at the rate of more than 17,000 a week, with the ERC inventory currently at 1.4 million.

In light of the large inventory and the results of the ERC review, the IRS will keep the processing moratorium in place on ERC claims submitted after Sept. 14, 2023. The IRS will use this period to gather additional feedback from partners, including Congress and others, on the future course of ERC.

“We decided to keep the post-September moratorium in place because we continue to be concerned about the substantial number of claims coming in so long after the pandemic,” Werfel said. “These claims are clogging the system for legitimate taxpayers. We worry that ending the moratorium might trigger a gold rush by aggressive marketers that could lead to a new round of improper claims, which would be a bad result for taxpayers or tax administration. We will use this time to consult with Congress and seek additional help from them on the ERC program, including potentially closing down new claims entirely and seeking an extension of the statute of limitations to allow the agency more time to pursue improper claims.”

Special IRS Withdrawal Program remains open for those with unprocessed ERC claims

Given the large number of questionable claims indicated by the new review, the IRS continues to urge those with unprocessed claims to consider the special IRS ERC Withdrawal Program to avoid future compliance issues.

Businesses should quickly pursue the claim withdrawal process if they need to ask the IRS to not process an ERC claim for any tax period that hasn’t been paid yet. Taxpayers who received an ERC check — but haven’t cashed or deposited it — can also use this process to withdraw the claim and return the check. The IRS will treat the claim as though the taxpayer never filed it. No interest or penalties will apply.

With more than 1.4 million unprocessed ERC claims, the claim withdrawal process remains an important option for businesses who may have submitted an improper claim.

IRS compliance work tops $2 billion from Voluntary Disclosure Program, withdrawal process, disallowances

The IRS also announced today that compliance efforts around erroneous ERC claims have now topped more than $2 billion since last fall. This is nearly double the amount announced in March following completion of the special ERC Voluntary Disclosure Program (VDP), which the IRS announced led to the disclosure of $1.09 billion from over 2,600 applications. The IRS is currently considering reopening the VDP at a reduced rate for those with previously processed claims to avoid future compliance action by the IRS.

Compliance work on previously processed ERC claims continue, and work continues on a number of efforts to counter questionable claims:

• The ongoing claim withdrawal process for those with unprocessed ERC claims has led to more than 4,800 entities withdrawing $531 million.

• The IRS has determined that more than 12,000 entities filed over 22,000 claims that were improper and resulted in $572 million in assessments. This initial round of letters covers Tax Year 2020. Thousands more of these letters are planned in coming months to address Tax Year 2021, which involved larger claims. Congress increased the maximum ERC from $5,000 per employee per year in 2020, to $7,000 per employee for each quarter of the year in 2021.

• More than 2,600 applications for the special ERC Voluntary Disclosure Program (VDP), which ended in March, disclosed $1.09 billion.

The IRS is currently assessing whether to reopen the special ERC Voluntary Disclosure Program to help taxpayers get into compliance on paid claims and avoid future IRS compliance action, including audits. If the program reopens, the IRS anticipates the terms will not be as favorable as the initial offering that closed in the spring. A decision will be made in coming weeks.

The IRS also reminded those with pending claims or considering submitting an ERC claim about other compliance actions underway:

Criminal investigations: As of May 31, 2024, IRS Criminal Investigation has initiated 450 criminal cases, with potentially fraudulent claims worth nearly $7 billion. In all, 36 investigations have resulted in federal charges so far, with 16 investigations resulting in convictions and seven sentencings with an average sentence of 25 months.

Audits: The IRS has thousands of ERC claims currently under audit.

Promoter investigations: The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.

Help for businesses with eligibility questions and those misled by promoters

Some promoters told taxpayers every employer qualifies for ERC. The IRS and the tax professional community emphasize that this is not true. Eligibility depends on specific facts and circumstances. The IRS has dozens of resources to help people learn about and check ERC eligibility and businesses can also consult their trusted tax professional. Key IRS materials to help show taxpayers if they have a risky ERC claim include:

• ERC Eligibility Checklist (interactive version and a printable guide) includes cautions about common areas of misinformation and links to facts and examples.

• 7 warning signs ERC claims may be incorrect outlines tactics that unscrupulous promoters have used and why their points are wrong.

• Frequently asked questions about the Employee Retention Credit includes eligibility rules, definitions, examples and more.

WASHINGTON – The Internal Revenue Service today issued Notice 2024-55, which provides guidance on exceptions to the additional tax when taking early permissible retirement plan distributions for emergency personal expenses and for victims of domestic abuse. 

This was added by the SECURE 2.0 Act of 2022, and the provisions became effective on January 1, 2024. 

Emergency personal expense distributions 

The notice provides that a taxpayer is permitted to receive a distribution from an applicable eligible retirement plan to meet unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The notice: 

• defines emergency personal expense distributions, including what is an unforeseeable or immediate financial need;
• provides that qualified defined contribution plans (including section 401(k) plans), section 403(a) annuity plans, section 403(b) plans, governmental section 457(b) plans or IRAs are eligible to permit emergency personal expense distributions;
• describes the limitations (both dollar amount and frequency) on receiving emergency personal expense distributions; and
• provides that individuals receiving emergency personal expense distributions are permitted to repay these distributions to certain plans. 

Distributions to victims of domestic abuse 

The notice also provides that a taxpayer is permitted to receive a distribution from an applicable eligible retirement plan if made during the one-year period beginning on the date on which the individual is a victim of domestic abuse by a spouse or domestic partner. The notice: 

• defines domestic abuse victim distributions, including the definition of domestic abuse;
• provides that IRAs and certain retirement plans that are not subject to the spousal consent requirements under sections 401(a)(11) and 417 are eligible to permit domestic abuse victim distributions;
• describes the dollar limitation (indexed for inflation) on receiving domestic abuse victim distributions; and
• provides that domestic abuse individuals are permitted to repay domestic abuse victim distributions to certain plans. 

The notice also provides guidance to applicable eligible retirement plans on the plan requirements relating to emergency personal expense distributions and domestic abuse victim distributions, including that it is optional for a plan to permit these types of distributions.    

In addition, the notice provides that the Department of the Treasury and the IRS anticipate issuing regulations on the 10% additional tax (including the exceptions to the 10% additional tax) and request comments relating to the notice. Comments are specifically requested on repayments of certain distributions permitted under section 72(t)(2). 

Taxpayers should know that these distributions are includible in gross income but are not subject to the 10% additional tax. Individuals report early distributions that are not subject to the 10% additional tax on line 2 of Form  5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts. In tax year 2021, the latest year for which the IRS has statistics, about 608,000 individuals reported that early distributions from qualified plans (including IRAs) were not subject to the 10% additional tax.

WASHINGTON — The Internal Revenue Service today announced the release of draft Form 6765, Credit for Increasing Research Activities, also known as the Research Credit. 

The IRS received helpful comments from various external stakeholders that have informed several revisions the IRS is making to reduce taxpayer burden. The feedback and changes will alleviate taxpayer burden, provide taxpayers with a consistent and predefined format and improve the information received for tax administration. 

The changes include: 

Optional reporting of Section G 

Section G, which was labeled “Section F” in the version of the form that IRS shared last fall, requests the Business Component Detail. The instructions will provide that Section G will be optional for: 

• Qualified Small Business (QSB) taxpayers, defined under section 41(h)(1) & (2) who check the box to claim a reduced payroll tax credit; or
• Taxpayers with total qualified research expenditures (QREs) equal to or less than $1.5 million, determined at the control group level, and equal to or less than $50 million of gross receipts, as determined under section 448(c)(3) (without regard to subparagraph (A) thereof), claiming a research credit on an original filed return. 

Reduced scope of Business Component Detail and other revisions 

In response to feedback from stakeholders, the IRS reduced the number of business components that must be reported on Section G. Taxpayers should report 80% of total QREs in descending order by the amount of total QREs per business component, but no more than 50 business components (with special instructions for taxpayers using the ASC 730 directive who can report ASC 730 QREs as a single line item on Section G). 

The amount of information that must be provided with respect to the reduced number of business components on Section G has also been reduced. For example, the IRS eliminated whether a business component is new/improved, a sale/license/lease and the narrative requirement (for original returns) that describes the information sought to be discovered. The selections for the type of business component are reduced, and the definitions for officers, controlled group reporting and business component descriptive names will be clarified in the instructions.  

The revised Section G will be optional for all filers for tax year 2024 (processing year 2025). This will allow taxpayers time to transition to the Section G format. Section G will be effective for tax year 2025 (processing year 2026), subject to the guidelines noted above.   

On Sept. 15, 2023, the IRS released a preview of proposed changes to Form 6765 and solicited comments from interested parties. The preview included a new Business Component Detail section for reporting quantitative and qualitative information for each business component, new questions seeking various information and reordering some of the existing questions on the form. The solicitation requested feedback on whether the new Business Component Detail section should be optional for certain taxpayers. 

Please see the final Form 6765. Instructions will be released at a later date.

FS-2024-21, June 17, 2024

WASHINGTON - The Department of the Treasury and the Internal Revenue Service today issued guidance on the inappropriate use of partnership rules to inflate the basis of the underlying assets without causing any meaningful change to the economics of their business.

The guidance issued today by Treasury and the IRS follows work by IRS exam teams, which have seen repeated instances of abusive basis-shifting taking place in sophisticated maneuvers by related-party partnerships.

As part of the larger IRS compliance efforts, the guidance issued today relates to certain partnership transactions that the IRS believes generate inappropriate tax benefits.

Generally, these transactions may employ several steps over a period of years and use sophisticated tax technology to ensure that little or no tax is paid while large amounts of tax basis is “stripped” from certain assets and shifted to other assets to generate tax benefits. In essence, these deals allow increased depreciation deductions or reduced gain on the sale of an asset with little or no substantive economic consequence.

These basis shifting transactions targeted in the new guidance generally fall into three groups:

Transfer of partnership interest to related party: In this transaction, a partner with a low share of the partnership’s “inside” tax basis and a high “outside” tax basis transfers the interest
in a tax-free transaction to a related person or to a person who is related to other partners in the partnership. This related-party transfer generates a tax-free basis increase to the transferee partner’s share of “inside” basis.

Distribution of property to a related party: In this transaction, a partnership with related partners distributes a high-basis asset to one of the related partners that has a low outside basis. After this, the distributee partner reduces the basis of the distributed asset and the partnership increases the basis of its remaining assets. The related partners can arrange this transaction so that the reduced tax basis of the distributed asset will not adversely impact the related partners, while the basis increase to the partnership’s retained assets can produce tax savings for the related parties.

Liquidation of related partnership or partner: In this transaction, a partnership with related partners liquidates and distributes (1) a low-basis asset that is subject to accelerated cost recovery or for which the parties intend to sell to a partner with a high outside basis and (2) a high-basis property that is subject to longer cost recovery (or no cost recovery at all) or for which the parties intend to hold to a partner with a low outside basis. Under the partnership liquidation rules, the first related partner increases the basis of the property with a shorter life or which is held for sale while the second related partner decreases the basis of the long-lived or non-depreciable property, with the result that the related parties generate or accelerate tax benefits.

To help address these areas, Notice 2024-54 announces two sets of upcoming regulations:

• The first set of regulations would require partnerships to treat basis adjustments arising from covered transactions in a way that would restrict them from deriving inappropriate tax benefits from the basis adjustments.
• The second set of regulations would provide rules to ensure clear reflection of the taxable income and tax liability of a consolidated group of corporations when members of the group own interests in partnerships. The notice further announces that that the covered transactions governed by these regulations would involve basis adjustments under Internal Revenue Code sections 732, 734(b) and/or 743(b).

Basis shifting identified as Transactions of Interest (TOI)
The proposed regulations Treasury and IRS issued today identify certain basis shifting transactions by partnerships as reportable Transactions of Interest (TOI).

“These proposed regulations will provide the IRS with information about potentially abusive partnership transactions involving basis shifting leading to significant tax benefits without causing any meaningful change to the economics of their business,” IRS Commissioner Danny Werfel said. “There are cases at either the litigation or the audit stage that involve transactions that are the same or similar to those described as transactions of interest in the proposed regulations issued today.”

The proposed regulations identify related-party partnership basis adjustment transactions and substantially similar transactions as a TOI – a type of reportable transaction. These proposed regulations would affect partnerships that are participating in the identified transactions by distributing partnership property or by transferring an interest in the partnership transferred in an identified transaction. The affected taxpayers and material advisors would be subject to the disclosure requirements for reportable transactions.

The TOIs generally involve positive basis adjustments of $5 million or more under subchapter K of the Internal Revenue Code – specifically sections 732(b) or (d), 734(b) or 743(b) – to which no corresponding tax is paid. The transactions would include either a distribution of partnership property to a partner that is related to one or more other partners in the partnership, or the transfer of a partnership interest in which the transferor is related to the transferee, or the transferee is related to one or more of the partners.

In these transactions, the basis increase allows related parties an opportunity for decreasing their taxable income through increased cost recovery deductions or through decreasing their taxable gain (or increasing their taxable loss) on the subsequent transfer of the property in a transaction in which gain or loss is recognized in whole or in part.

The proposed regulations would affect the partnership and the partners that are participating in the identified transactions, including by receiving a distribution of partnership property, transferring a partnership interest or receiving a partnership interest.

“You can see by these descriptions that these involve complex arrangements where taxable income can be shielded from scrutiny,” Werfel said. “These proposed regulations demonstrate the agency’s commitment to use new resources to unpack complicated noncompliance by partnerships and other high-income taxpayers, which is an important part of our efforts to bring more fairness to the tax system.”

Revenue Ruling informs the public that IRS will challenge basis stripping
Revenue Ruling 2024-14 notifies taxpayers and advisors using partnerships that engage in three variations of these transactions that the IRS will apply the codified economic substance doctrine to challenge inappropriate basis adjustments and other aspects of these transactions.

Under Revenue Ruling 2024-14, the IRS announces that the economic substance doctrine will be raised in cases where related parties:

1. create inside/outside basis disparities through various methods, including the use of certain partnership allocations and distributions,
2. capitalize on the disparity by either transferring a partnership interest in a nonrecognition transaction or making a current or liquidating distribution of partnership property to a partner, and
3. claim a basis adjustment under Internal Revenue Code sections 732(b), 734(b), or 743(b) resulting from the nonrecognition transaction or distribution.

New IRS teams being established; new guidance designed to stop partnerships from using sophisticated tax-free transactions that lack economic substance

IR-2024-166, June 17, 2024

WASHINGTON — As part of ongoing efforts to focus more attention on high-income compliance issues, the Internal Revenue Service announced today a new series of steps to combat abusive partnership transactions that allow wealthy taxpayers to avoid paying what they owe.

IRS compliance work continues to accelerate in this complex area of law following Inflation Reduction Act funding. As part of this, the agency is announcing a new dedicated group in the Office of Chief Counsel specifically focused on developing guidance on partnerships, including closing loopholes. The office will work closely with a new passthrough work group being established in the IRS Large and Business International division that will be formally established this fall.

The IRS and the Department of the Treasury today also issued three pieces of guidance focused on partnerships following discoveries by IRS audit teams. Currently, the IRS has tens of billions of dollars of deductions claimed in these transactions under audit.

The new guidance is designed to stop the use of “basis shifting” transactions that use related-party partnerships to avoid taxes. In these complex moves, high-income taxpayers and corporations strip basis from assets they own where the basis is not generating tax benefits and then move the basis to assets they own where it will generate tax benefits without causing any meaningful change to the economics of their businesses. These basis shifting transactions allow closely related parties to avoid taxes.

Treasury estimates these abusive transactions, which cut across a wide variety of industries and individuals, could potentially cost taxpayers more than $50 billion over a 10-year period.

“This announcement signals the IRS is accelerating our work in the partnership arena, which has been overlooked for more than a decade and allowed tax abuse to go on for far too long,” said IRS Commissioner Danny Werfel. “We are building teams and adding expertise inside the agency so we can reverse long-term compliance declines that have allowed high-income taxpayers and corporations to hide behind complexity to avoid paying taxes. Billions are at stake here.”

Using IRA funds, the IRS is increasing audits on complex partnerships, and the issues covered in this guidance will emerge as an important focus area.

The IRS is looking at these issues in current audits and will equip examiners to identify these issues on other partnership returns identified for examination as part of either the Large Partnership Compliance (LPC) program, partnership audit campaigns or other selection methods.

In addition, the new guidance provides greater clarity to taxpayers and examiners. And when final regulations are issued, the increased reporting requirements under the Transactions of Interest (TOI) announced today would give the IRS greater awareness of these arrangements, which are difficult to identify from the face of the tax return.

Werfel noted the guidance today is another sign that IRS compliance activity involving partnerships is accelerating and is needed given indications that marketing to promote basis-shifting transactions is increasing.

“In essence, basis shifting amounts to a shell game where sophisticated tax maneuvers take place by shifting the basis of assets between closely related entities, ultimately allowing these complex partnership arrangements to hide from a tax bill,” Werfel said. “These complicated maneuvers take time and resources for the IRS to uncover. The new guidance is aimed at telling promoters that the IRS considers these transactions inappropriate, and we are bringing new Inflation Reduction Act resources into play to beef up our compliance work in the overlooked partnerships and passthroughs area.”

Partnerships are part of a category of pass-through organizations under the federal tax code. Pass-throughs include entities such as partnerships and S-corporations. These groups are not subject to the corporate income tax; instead, income is "passed through" onto the income tax returns of the individual or corporate owners and taxed at their income tax rates. Partnerships and other pass-throughs are frequently used by higher-income groups and can be complex tax arrangements.

During the past decade, IRS budget cuts have made it harder for the agency to focus compliance resources on partnerships. Tax filings from passthrough businesses with more than $10 million in assets jumped to nearly 300,000 filings in 2019, 70% more than 2010. At the same time, audit rates fell from 3.8% in 2010 to 0.1% in 2019.

To counter these continuing compliance concerns, the IRS is using funding from the Inflation Reduction Act to strengthen enforcement among high-income taxpayers and corporations, with a special focus on partnerships. The IRS continues to work to add more top talent to help improve compliance work in this area.

The IRS has already announced a series of steps to improve compliance involving high-income individuals and partnerships, including launching audits on 76 of the largest partnerships with average assets over $10 billion that includes hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and many other industries. The IRS announced today that these complex audits are proceeding and in various stages of the process. These audits can take years depending on the size and complexity of the partnerships.

As part of the increased focus on this area, IRS Chief Counsel Margie Rollinson announced the creation of new Associate Office that will focus exclusively on partnerships, S-corporations, trusts and estates.

“This new Associate office will allow the Chief Counsel organization to focus more directly on this complex area of the tax law and allow more attention to legal guidance and other priorities in the partnership arena,” Rollinson said.

The Associate Office will be drawn from the current Passthroughs and Special Industries (PSI) Office. The “Special Industries” piece of Chief Counsel’s former PSI Office will form a new Associate office as well to focus on energy, credits and incentives and excise taxes, joining another office that has been focused on clean energy guidance.

The new Chief Counsel office will work in close coordination with IRS business units. This includes LBI, which earlier announced plans to establish a special work group focused on passthroughs, including complex partnerships. Although work has already started in this area, LBI plans to formally establish the new work group this fall.

Werfel noted that for the new workgroups in both Counsel and LBI, the IRS plans to bring in outside experts with private-sector experience regarding pass-throughs to work alongside the expert in-house knowledge of current IRS employees.

“This is an area where the IRS has not had the resources to keep pace with growth in the number of partnerships and the sophisticated tax maneuvers taking place,” Werfel said. “We are continuing to accelerate our work in this area. We need to hone-in on areas where we believe non-compliance has proliferated during the last decade of IRS budget cuts, and partnerships represent an area where complex business structures have allowed millionaires and high-income earners to avoid paying what they legally owe while average taxpayers play by the rules.”

Notice 2024-54 announces that the Department of the Treasury and the Internal Revenue Service intend to issue two sets of proposed regulations that would provide special rules for certain transactions under §§ 732, 734, 743, 755, and 1502 of the Internal Revenue Code.  First, proposed regulations under §§ 732, 734, 743, and 755 would provide special rules for the cost recovery of positive basis adjustments or the ability to take positive basis adjustments into account in computing gain or loss on the disposition of basis adjusted property following certain transactions.  Second, proposed regulations under § 1502 would provide rules to clearly reflect the taxable income and tax liability of a consolidated group whose members own interests in a partnership.

Notice 2024-54 will be published in Internal Revenue Bulletin 2024-28 on July 8, 2024

Revenue Ruling 2024-14 advises taxpayers of the Service’s position challenging certain partnership related-party transactions under the codified economic substance doctrine in § 7701(o).  Under the ruling, the Service applies the economic substance doctrine in three situations involving related parties where some or all of whom are partners in a partnership, and the parties: (1) create basis disparities through various methods; (2) capitalize on these basis disparities either by transferring a partnership interest in a nonrecognition transaction or by making a current or liquidating distribution of partnership property to a partner; and (3) claim a basis adjustment under §§ 732(b), 734(b), or 743(b).  The ruling holds that these transaction structures lack economic substance under § 7701(o).  In such cases, the Service will disregard the basis adjustments.

Revenue Ruling 2024-14 will be published in Internal Revenue Bulletin 2024-28 on July 8, 2024

Inside This Issue

1. 2024 Nationwide Tax Forum: Early-bird registration ends June 17
2. Reminder: Estimated taxes due on June 17
3. IRS reaches out to job seekers
4. Tax relief available for Kentucky, West Virginia disaster victims
5. Upcoming webinars for tax practitioners
6. News from the Justice Department's Tax Division
7. Technical Guidance

1.  2024 Nationwide Tax Forum: Early-bird registration ends June 17

The IRS encourages tax professionals to register for the 2024 IRS Nationwide Tax Forum by 5 p.m. ET on June 17 to take advantage of the early bird rate of $255 per person. A savings of $54 off the $309 standard rate and $135 off the on-site registration rate of $390. Standard pricing begins on June 17 after 5 p.m. ET and ends two weeks before the start of each forum.

The 2024 IRS Nationwide Tax Forum begins in Chicago, July 9-11, and continues on to Orlando, July 30-Aug. 1, Baltimore, Aug. 13-15, Dallas, Aug. 20-22, and concludes in San Diego, Sept. 10-12.

As the IRS’ marquis outreach event to the tax professional community, these 3-day conferences offer an opportunity for participants to learn from both IRS and industry experts, network with IRS officials and colleagues, and gain valuable insights into the tax industry.

This year’s list of seminars includes topics ranging from tax law updates to managing client examinations, from digital assets to the Secure Act 2.0, and from the employee retention credit to clean energy credits. For more information and to register, visit IRS Nationwide Tax Forum.

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2. Reminder: Estimated taxes due June 17

The IRS reminded taxpayers who do not have income subject to withholding that the deadline for paying estimated taxes for the second quarter is June 17. To prevent falling behind on their payments and possibly incurring underpayment penalties, the IRS encourage taxpayers who are paying estimated taxes to take this deadline into account. Additionally, taxpayers are reminded by the IRS that the third quarter payments are due Sept. 16, and the final estimated tax payment for tax year 2024 is due on Jan. 15, 2025.

Taxpayers can use a number of resources to find answers to common tax questions, including the Interactive Tax Assistant, Tax Topics and frequently asked questions.

 

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3. IRS reaches out to job seekers

The IRS announced the redesigned IRS Careers website is operational and prepared to match job seekers with IRS opportunities. As part of an ongoing hiring initiative enabled by Inflation Reduction Act funding, the IRS modernized its primary vehicle to publicize job opportunities and hire new talent.

The hiring site IRS.gov/jobs now provides a comprehensive landing spot for job seekers to find everything they need to pursue a career at the IRS, including:

• Upcoming hiring events;
• Key job descriptions;
• Overview of the IRS and employee benefits; and
• Special emphasis hiring paths (veterans, Schedule A Excepted Service Appointing Authority, students and other areas).

For tax professionals interested in a career at the IRS, the IRS is hosting an exclusive recruiting event at the Nationwide Tax Forum, being held in Chicago, Orlando, Baltimore, Dallas and San Diego. Tax Forum registrants will be sent more information leading up to each forum and recruiters will be there to share more information about job openings, salaries and benefits.

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4. Tax relief available for Kentucky, West Virginia disaster victims

Disaster-area taxpayers in parts of Kentucky and West Virginia affected by severe storms that began on April 2 have until Nov. 1 to file various federal individual and business tax returns and make payments. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). The same relief will be available to any other counties added later to these disaster areas. The current list of eligible localities is available on the Tax relief in disaster situations page on IRS.gov.

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5. Upcoming webinars for tax practitioners

The IRS offers the upcoming live webinar to the tax practitioner community:

• Understanding Form 2290 - Heavy Highway Vehicle Use Tax on June 18, at 2 p.m. ET. Earn up to 2 CE credits (Federal tax).

For information or to register, visit www.webcaster4.com.

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6. News from the Justice Department’s Tax Division

The Justice Department filed a complaint seeking to bar Texas-area tax return preparer Ruben Gonzalez from preparing tax returns for others. By repeatedly understating customers’ tax liabilities, the complaint alleges that Gonzalez United States has been harmed by Gonzalez’s conduct, resulting in a significant loss in tax revenue of an estimated $20 million.

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7. Technical Guidance

Revenue Procedure 2024-26 updates existing procedures and provides additional procedures for qualified manufacturers to submit information regarding new clean vehicles to ensure the vehicles satisfy the requirements of section 30D(d) and (e) of the Internal Revenue Code (Code) for the applicable calendar year and therefore are eligible for the clean vehicle credit under section 30D.

Notice 2024-47 extends the relief provided in Notice 2024-33, which waived the estimated tax penalty imposed under section 6655 (for a corporation’s failure to pay estimated income tax) to the extent attributable to the revised corporate alternative minimum tax (CAMT) under section 55, but only with respect to an installment of estimated tax due on April 15, 2024, or May 15, 2024, with respect to a taxable year that began in 2024.

Notice 2024-47 extends the relief provided in Notice 2024-33, which waived the estimated tax penalty imposed under § 6655 (for a corporation’s failure to pay estimated income tax) to the extent attributable to the revised corporate alternative minimum tax (CAMT) under § 55, but only with respect to an installment of estimated tax due on April 15, 2024, or May 15, 2024, with respect to a taxable year that began in 2024. The relief from the addition to tax under § 6655 provided by Notice 2024-33 is extended to any installment of estimated tax by a corporate taxpayer with respect to a taxable year that began in 2024 that is due on or before August 15, 2024, to the extent attributable to the CAMT. 

Notice 2024-47 will be in IRB:  2024-27, dated 07/01/2024.