Tax Dispute Resolution Quarterly

New law creates new risks for partnership
investments
By Carol Kulish Harvey, Deborah Fields, and Harve Lewis, Washington
National Tax
Legislation in November 2015 fundamentally changed the landscape for resolving
tax disputes involving partnerships. The Bipartisan Budget Act of 2015 upends
the so-called TEFRA rules, which have been in place for more than 30 years.
Under the new rules, the IRS will be able to impose liability at the partnership
level if it determines, after an audit, that tax was paid on too little income—unless
the partnership is eligible to elect, and properly elects, to be subject to a different
set of rules. As a result, the IRS’s adjustment of partnership income in a prior year
ultimately could burden the partnership’s assets and current owners.
A March article in KPMG LLP’s Board Perspective Series addresses the
implications of this new law for companies with partnership investments.
Companies that own interests in or lend to partnerships may want to start
thinking now about how to manage risks posed by the new law.
Section 385 regulations: Transforming the
world of cross-border corporate income tax?
In April, the Treasury Department and IRS proposed regulations under
section 385 on the treatment of certain related-party corporate interests
as debt or equity for U.S. federal income tax purposes. Although issued as
part of Treasury’s effort to discourage corporate inversions, the proposed
regulations may have their greatest affect outside of the inverted company
context. For example, if finalized, the regulations could potentially effect the
treatment of intercompany debt issued among certain corporate groups,
resulting in the recharacterization of certain debt instruments as preferred
equity for U.S. tax purposes.
Watch the replay of KPMG LLP’s webcast on the proposed regulations.
Professionals from the firm’s Washington National Tax practice discussed
the regs’ potential, significant impact on corporate taxation of intercompany
debt. Topics include documentation requirements, distributions of debt
instruments and similar transactions, treatment of consolidated groups and
questions submitted by numerous viewers.
Assessing the validity of regulations after Altera
Last year’s Altera Corp. v. Commissioner decision overturned the portion of
section 482 regulations requiring related-party participants in a cost-sharing
arrangement (CSA) to share stock-based compensation costs. In addition
to potential affecting transfer pricing for taxpayers with CSAs, the U.S. Tax
Court case may portend changes to how tax regulations are developed and
promulgated in the future.
During this April webcast, KPMG LLP professionals discussed the potential
impact of Altera on taxpayers’ ability to challenge IRS regulations, the
history of disputes under the CSA regulations concerning stock-based
compensation costs, and the broader implications of Altera for transfer
pricing issues.
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