Tax Notes (C) Tax Analysts 2016
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tax notes (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. Volume 151, Number 1 April 4, 2016 Can Corporate Tax Reform Build on Apple’s Proposal? Treaty Relief for Unregulated Investment Funds? The Dubious Distinction Between Politics and Charity Is There a Presumption Against Extraterritorial Taxes? Transfers of Intangibles to an Existing Partnership Limited Scope Tax Engagements Are Not as Limited as You Think For more Tax Notes content, please visit www.taxnotes.com. (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. For more Tax Notes content, please visit www.taxnotes.com. CONTENTS (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. tax notes™ Volume 151 Number 1 23 Business Test Met, Common ON THE COVER Control Found in Sun Capital by Marie Sapirie 93 Can Corporate Tax Reform 24 Sentence Commuted for Drug Build on Apple’s Proposal? Dealer Who Filed False Returns by Bill Parks by David van den Berg 25 Tax Court Refuses to Disregard 7 Treaty Relief for Unregulated Peek in IRA Loan Case Investment Funds? by Andrew Velarde by Lee A. Sheppard 27 Tax Court Issues Proposed and Interim Rules for Tax Law Changes 13 The Dubious Distinction by Nathan J. Richman Between Politics and Charity by Joseph J. Thorndike 28 Pro Bono Clinic Days Offer New Option to Help Pro Se Petitioners by Nathan J. Richman 65 Is There a Presumption Against Extraterritorial Taxes? 32 Group Portrays Case as Last by Jasper L. Cummings, Jr. Hope Against Dark Money by Paul C. Barton 77 Transfers of Intangibles to 33 Trump Attorneys Describe An Existing Partnership IRS ‘Examinations’ by Paul C. Barton by W. Eugene Seago and Kenneth N. Orbach 34 Calculator Estimates 87 Limited Scope Tax Engagements Candidates’ Tax Hits Are Not as Limited as You Think by William Hoffman by Scott F. Hessell and Erin W. Wolf 35 Hudson Institute Tax Plan Strives For Fiscal and Political Balance Cover graphic: Associated Press by William Hoffman 37 States Largely Ignored in Federal Tax Reform Plans, Panel Says by Jonathan Curry 38 No Action on Comprehensive Tax FROM THE EDITOR Reform in 2016, Survey Says 5 by Dylan F. Moroses 40 Ryan’s Comments on Distribution NEWS Draw Range of Responses by Dylan F. Moroses 17 Starr Forgoes Appeal, Opts To Pursue Claim Under APA 41 Roskam to Continue Oversight’s by Matthew R. Madara Push for Asset Forfeiture Reform by Kat Lucero 18 IRS Inconsistent in Denying Estate Tax Deduction for OVDP Penalty 43 Taxpayer Advocate Schedules by William Hoke More ‘Future State’ Forums by William Hoffman 20 AbbVie Complaint on Inversion Motives Dismissed 44 Final Anti-Loss Importation Regs by Amanda Athanasiou Reject Most Recommendations by Marie Sapirie 22 Puerto Rico’s AMT Unconstitutional, U.S. Court Holds 46 IRS Plans to Issue Proposed Regs by Alexander Lewis Defining REIT Congregate Care by Amy S. Elliott TAX NOTES, April 4, 2016 3 For more Tax Notes content, please visit www.taxnotes.com. 48 REIT Rule Missteps: Pay the Penalty or Bust the REIT? LETTERS TO THE EDITOR (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. by Amy S. Elliott 119 Technical Flaw in Anti-Loss 49 Tax Policy Becomes Uncommon Importation Regs Cause for Rock Band by William R. Davis 121 TAX CALENDAR 52 Transfer Pricing Roundup by Ryan Finley and Kristen Langsdorf IN THE WORKS WEEKLY UPDATE 98 A look ahead to planned commentary and analysis 53 Guidance by Joseph DiSciullo CROSSWORD PUZZLE 57 Courts by Joseph DiSciullo 126 April 2016 Tax Crossword Puzzle 61 Correspondence by Myles Mellor by Joseph DiSciullo SPECIAL REPORT 65 Is There a Presumption Against Extraterritorial Taxes? by Jasper L. Cummings, Jr. TAX PRACTICE 77 Transfers of Intangibles to An Existing Partnership by W. Eugene Seago and Kenneth N. Orbach 87 Limited Scope Tax Engagements Are Not as Limited as You Think by Scott F. Hessell and Erin W. Wolf VIEWPOINTS 93 Can Corporate Tax Reform Build on Apple’s Proposal? by Bill Parks 99 The Earned Income Tax Credit: Trust, but Verify by J. Kent Poff GRIST FOR THE MILL 105 Million-Dollar Dirt: A Look at the IRS Whistleblower Program by John Myrick IN MEMORIAM 113 Ira Shepard by Calvin H. Johnson TAX HUMOR 115 Happy April Fools’ Day From Tax Notes 4 TAX NOTES, April 4, 2016 For more Tax Notes content, please visit www.taxnotes.com. FROM THE EDITOR (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. tax notes™ Corporate Tax Reform for All taxable income, just as the states do, is in line with Apple’s goal of imposing reasonable foreign rates, Parks says. Sales factor apportionment may not By Ariel S. Greenblum — satisfy political liberals who want to use worldwide [email protected] income as the tax base, but it could be used to distinguish between domestic and foreign profits, Comprehensive tax reform will not happen in he adds. 2016, according to a survey of business tax execu- House Speaker Paul D. Ryan is undoubtedly an tives conducted by Miller & Chevalier Chtd. and influential person in tax (and according to the the National Foreign Trade Council, Dylan Moroses survey, the most influential). He recently talked reports (p. 38). If and when it does eventually about expanding everyone’s slice of the economic happen (and 11 percent of those surveyed believe it pie but emphasized that the government should not never will), respondents are already disappointed redistribute slices (p. 40). Parks says that what Ryan with it because they believe that Congress won’t is truly after is tax relief and, by accomplishing that, lower the corporate and individual rates far Apple’s ideas could be ripe for breaking the grid- enough. lock. The conflation of tax reform and rate cutting is not new, but the study is a disheartening example of Highlights how deep that misconception runs. The over- The D.C. Circuit in Validus held against the IRS whelming majority of respondents prioritized de- on its application of the foreign insurance excise tax, creased rates over code simplification and revenue using logic that revealed the court’s unfamiliarity neutrality, Moroses says. with tax law, Jasper Cummings, Jr. says (p. 65). The The definition of tax reform is many things, court held that because Congress did not clearly including perhaps cutting rates. But despite a lot of indicate its intent to tax beyond the territory of the discussion in Congress, its goals remain polarizing, United States, the presumption against extraterrito- and the survey results rightly point to the dismal riality should limit the tax’s reach, he writes. Ac- chances of reform being achieved with a divided cording to Cummings, it’s an odd conclusion, given government. If only there were a compromise. that the whole point of the tax is to have extrater- Apple Inc. proposed one that would apply to ritorial effect. But he admits that he is in the corporate tax laws, and Bill Parks analyzes its call to minority and he said most commentators believe eliminate all corporate tax expenditures, be revenue the D.C. Circuit got it right. neutral, and impose a ‘‘reasonable’’ tax on foreign Tax attorneys often want to limit the scope of earnings, besides lowering the corporate rate and client representation to specific years or particular simplifying the code (p. 93). Apple’s proposal transactions under audit. However, when things go would make sense for the fisc and would make awry, courts can overrule those limitations and find businesses happy because it changes the definition that the attorneys’ duties to their clients extended of corporate income, from one that applies credits further than they anticipated, say Scott Hessell and and deductions, to one that uses book income, or Erin Wolf (p. 87). The key to avoiding that situation revenue less expenses, Parks says. Higher corporate is to include representation limitations upfront in income across the board would allow for lower the written retention agreement, the authors say. rates, he writes. It’s a bold proposal, but with one of However, Hessell and Wolf discuss cautionary tales the biggest corporate players in the world already of attorneys who lost malpractice cases because of behind it, maybe others will follow. flawed agreements with inadequate limitations pro- Using sales and income figures from financial visions, and they describe the pitfalls to watch out statements to determine jurisdictions’ shares of for. TAX NOTES, April 4, 2016 5 For more Tax Notes content, please visit www.taxnotes.com. tax notes® (C) Tax Analysts 2016. All rights reserved. does not claim copyright in any public domain or third party content. Copyright 2016, Tax Analysts ISSN 1048-3306 President and Publisher: Christopher Bergin Deputy Publisher: David Brunori Editor in Chief: Jeremy Scott Editor in Chief: Cara Griffith Deputy Editor in Chief: Chuck O’Toole Editor: Ariel S. Greenblum Chief Correspondent: Amy S. Elliott Deputy Editor: Paige A. Foster Reporters: Paul C. Barton, Kaustuv Basu, Stephen K. Cooper, William R. Davis, Luca Gattoni-Celli, William Hoffman, Legal Editors: Joseph DiSciullo, John Myrick, Kat Lucero, Matthew R. Madara, Nathan J. Richman, Susan Simmonds Fred Stokeld, David van den Berg, Andrew Velarde Managing Editor: Patrick Sullivan Assistant Editor: John Bell Copy Chief: Betsy Sherman Editorial Staff: Zachary Abate, Monica Anderson, Joe Aquino, Editorial Assistant: Christa Goad Julie Brienza, Amanda Chan, Jonathan Curry, Patrice Gay, Contributing Editor: Lee A.