Insights

Companies with employees in the Southern California area have several tax-advantageous alternatives when providing employees with disaster relief.  This alert outlines the more common relief programs available under IRS guidance.

On October 24, 2024, Crowell & Moring LLP hosted its 38th Annual Managing Tax Audits and Appeals Seminar. The seminar featured several prominent IRS speakers and lively discussion among clients, including conversations about the following hot topics:

Tax partner Carina Federico and Tax counsel Eleanor Moran McWaters discuss IRA and Tax Exempt Entities.

The Eighth Circuit partially overturned the district court in Mayo Clinic v. United States, holding that only organizations that have a primary purpose or function that is educational qualify under Section 170(b)(1)(A)(ii). Mayo Clinic v. United States, No. 19-3189, 2021 WL 1916000 (8th Cir. May 13, 2021). However, notably, the court agreed with the district court in part and concluded that Treasury Regulation § 1.170A-9(c)(1) unreasonably limits educational organizations to only those principally providing formal instruction.

The Tax Court recently held that an S corporation, Enercon, could not claim research tax credits that it passed through to its owners because the research qualifying for the credits was completed under a contract with another company and Enercon did not retain substantial rights to the research. Tangel v. Comm’r of Internal Revenue, T.C.M. (RIA) 2021-001.

On October 9, Andy Keyso, Chief of IRS Independent Office of Appeals (Appeals), provided an update regarding Appeals’ operations during the pandemic, participation by Exam in Appeals Conferences, increased managerial oversight into Appeals, and the Taxpayer First Act. A video of Mr. Keyso’s presentation at the 34th Annual Crowell & Moring LLP Managing Tax Audits and Appeals Seminar may be found here.

On June 22, 2020, the U.S. Supreme Court denied Altera’s petition for writ of certiorari, declining to review the Ninth Circuit’s decision regarding the validity of Treasury Regulations under Section 482 which require cost sharing of stock-based compensation. The denial of certiorari ends Altera’s eight years of litigation, confirming that stock-based compensation must be included in costs shared under a qualified cost sharing arrangement and affirming the deference to be given to Treasury Regulations – at least in the Ninth Circuit.

Overspent on Giving Tuesday? Donated masks to a local organization only to realize the organization is not a Section 501(c)(3) charitable organization? Many organizations and individuals have risen to the challenge and contributed much needed supplies and cash during the COVID-19 pandemic and economic downturn. Here are five things to know about charitable contributions during the pandemic:

Treasury and the IRS recently published proposed regulations with welcome guidance regarding how exempt organizations are to calculate unrelated business taxable income (UBTI). The proposed regulations clarify the calculation under Section 512(a)(6), which requires exempt organizations to compute UBTI separately for each unrelated trade or business. Section 512(a)(6) and the proposed regulations will affect all organizations with more than one unrelated trade or business and investment income, regardless of the amount of UBTI. The proposed regulations specifically reject a carve-out proposed by tax practitioners for exempt organizations with less than $100,000 of gross UBTI. All organizations should, therefore, be aware of the proposed regulations and may want to consider strategically restructuring unrelated trades or businesses and investment activities to minimize UBTI and to comply with the many detailed rules contained therein.

The IRS has issued much-awaited guidance regarding the Section 45Q credit. In Revenue Procedure 2020-12, the IRS provided a safe harbor under which the IRS will treat partnerships as properly allocating the Section 45Q credit to investor-partners. In Notice 2020-12, the IRS issued guidance and safe harbors on the beginning of construction under Section 45Q, which permits credits only for projects for which construction begins before January 1, 2024. Taxpayers await proposed regulations on Section 45Q, which are expected to cover technical issues such as recapture and alternatives for secure geological storage.

A U.S. District Court recently held that the Mayo Clinic, the parent organization of several hospitals, clinics, and the Mayo Clinic College of Medicine and Science, was a qualified educational organization described in Internal Revenue Code (“Code”) section 170(b)(1). Mayo Clinic v. United States, No. 16-cv-03113 (ECT_KMM), 2019 WL 3574709 (D. Minn. Aug. 6, 2019). The Mayo Clinic, a Code section 501(c)(3) organization, sought a refund of approximately $11 million related to an IRS assessment for unrelated business income taxes under Code section 511. The Mayo Clinic’s position was that it could exclude passive income derived from debt-financed real property from its calculation of unrelated business income taxes because it was an educational organization within the meaning of Code section 170(b)(1)(A)(ii). Only certain organizations, including educational organizations, may so exclude income derived from leveraged property. The court ultimately upheld the clinic’s qualification as an educational organization and denied the government’s proposed adjustment.

John C.C. Hughes, the Director of the Advance Pricing and Mutual Agreement Program (APMA), spoke on Thursday, September 12th at Crowell & Moring, LLP. As Director, Mr. Hughes oversees APMA’s work in negotiating advance pricing agreements (APAs) with taxpayers and foreign governments and in resolving transfer pricing cases through the mutual agreement procedure (MAP) of U.S. income tax treaties with his counterparts within the tax authorities of our treaty partners.

On September 9, the IRS Independent Office of Appeals (Appeals) provided an update and an FAQ regarding the Appeals Team Case Leader Conferencing Initiative pilot program (Conferencing Initiative). Andy Keyso, Deputy Chief, Appeals spoke on Friday, September 13 at Crowell & Moring, LLP about recent changes in Appeals under the Taxpayer First Act and about the Conferencing Initiative.

In light of recent IRS guidance, companies should evaluate their tax treatment of cloud transactions. On August 9, 2019, the IRS issued Proposed Treasury Regulation § 1.861-19 on the classification of cloud transactions. The classification of the transaction (that is, as either a lease of property or as a provision of services) determines the tax consequences of the transaction. Companies should confirm whether their classifications of cloud transactions are consistent with the proposed regulations.

In Altera Corporation & Subsidiaries v. Commissioner (June 7, 2019), the U.S. Court of Appeals for the Ninth Circuit again overturned the U.S. Tax Court and held that a regulation requiring cost sharing of stock-based compensation was valid under the Administrative Procedure Act (APA).