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In Sudden About-Face, Ninth Circuit Withdraws Altera Decision Pending Further Discussions with New Panel Judge

As previously reported by Ropes & Gray, on July 24, 2018, the Ninth Circuit reversed the Tax Court’s prior decision in the Altera case and upheld the IRS regulation requiring the allocation of stock-based compensation in qualified cost-sharing agreements. The decision was particularly notable since it ended in a 2-1 vote, in which Judge Reinhardt, who passed away in March 2018, cast the deciding vote. Late last week, the Ninth Circuit appointed a new judge, Susan Graber, to replace Judge Reinhardt under a local procedural order mandating that the court clerk randomly draw a replacement judge upon the death of any panel member. However, in lieu of awaiting any motions for rehearing, today the Ninth Circuit withdrew its opinion “to allow time for the reconstituted panel to confer on this appeal.” Since a withdrawn decision has no legal effect and the decision of the court could change, affected taxpayers who have not already taken action in response to the decision should consider watching and waiting for a new opinion to be issued before taking any further action.

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IRS Announces Five New Compliance Campaigns Focusing on Corporate Spin-Offs and Partnerships


Time to Read: 1 minutes Practices: Tax Controversy

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On March 13, 2018, the IRS announced five new Large Business and International Division (“LB&I”) compliance campaigns, adding to the 24 campaigns announced last year and discussed in the Tax Controversy quarterly newsletter and in a previous client alert. Its announcement marks a continuation of the LB&I’s modified compliance orientation, which seeks to focus more of its resources on high-risk substantive issues and voluntary compliance efforts and less on traditional audits and audit targets, such as large taxpayers. The five new campaigns are as follows:

  • Costs that Facilitate an IRC Section 355 Transaction: LB&I will conduct issue-based audits of taxpayers who may have improperly deducted costs associated with tax-free spin-offs under Section 355 instead of capitalizing them.
  • Self-Employment Contributions Act (SECA) Tax: this campaign will focus on whether partners and LLC members who provide services to their partnerships or LLCs have appropriately reported and paid self-employment tax associated with their earnings, and may involve issue-based audits, as well as outreach to tax professionals, including software providers.
  • Partnership Stop Filer: LB&I will be looking at partnerships that have stopped filing returns, and may conduct issue-based audits or send soft letters encouraging partnerships to file delinquent returns.
  • Sale of Partnership Interest: this campaign will focus on whether partners properly reported the character of the gain or loss from the sale of partnership interests and paid any taxes due at the appropriate rate, considering the holding period and assets held by the partnership.
  • Partial Disposition Election for Buildings: LB&I is looking at taxpayers who reported partial dispositions of buildings, including structural components, to see if they complied with 2014 substantiation requirements. The campaign will involve issue-based audits and potential changes to forms, instructions, and related publications.
 

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