Recommended Alerts

IRS Issues Proposed Regulations on Deductions of Certain Settlement Payments to Governments

On May 12, 2020, the IRS released proposed regulations (REG-104591) affecting the deductibility of payments made to governments in settlement of alleged violations of law. The proposed regulations interpret Sections 162(f) and 6050X of the Internal Revenue Code of 1986 (the Code), as amended and introduced by the Tax Cuts and Jobs Act (TCJA), respectively. Sections 162(f) and 6050X changed the requirements for taxpayers to deduct amounts paid to the government pursuant to court-ordered judgments, settlement agreements, non-prosecution agreements, deferred prosecution agreements, and decisions by certain boards/commissions. At a high level, under Section 162(f), to be deductible, such payments must be restitution, remediation, or an amount paid to come into compliance with the laws, and must be identified as such in either the order or agreement (the “identification requirement”). In addition, taxpayers must maintain records substantiating the nature of their payments (the “establishment requirement”).

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

March 19, 2018
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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