IRS Moves to Stop Section 901(m) Abuse Through Check-the-Box Elections

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The Internal Revenue Service issued Notice 2014-45 to prevent further taxpayer abuse in the wake of Notice 2014-44, released July 21 to stop taxpayers from using a so-called statutory disposition rule to avoid taxes under tax code Section 901(m).
Practitioners said the July 29 guidance appears to target a situation in which a taxpayer could retroactively “check the box” to get around the effective date of Notice 2014-44. In the new notice, the IRS said taxpayers can't escape the previous guidance by filing entity classifications that go back in time.
Rebecca Rosenberg, a principal at PricewaterhouseCoopers LLP, called the new guidance “an aftershock,” in a July 29 interview. “It's fascinating. It's a very targeted change to the effective date,” she said.
Section 901(m) was enacted in 2010 to prevent inappropriate use of the foreign tax credit. The statute was intended to reach transactions in which taxpayers are able to offset U.S. income taxes because of differences between U.S. and foreign basis in cross-border transactions.
In Notice 2014-44, the IRS said it plans to issue rules to stop taxpayers from engaging in deals shortly after covered asset acquisitions that invoke the disposition rule in ways that avoid the purpose of Section 901(m) (140 DTR G-5, 7/22/14).

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