Updates from the IRS to Begin the 2017 Tax Year


Just like any good New Year’s resolution, it is critical to begin on the right foot. For tax professionals, this means understanding recent procedural matters that the IRS has released. Although a majority of guidance issued by the IRS via the annual revenue procedures remains unchanged, it is critical to acknowledge and understand any additions, subtractions, or amendments. This post reviews a couple of procedural matters set forth by the IRS this past month, including the major restructuring of the annual revenue procedures pertaining to guidance on exempt organizations and a stern warning to conservation easement promoters.  

Rev. Proc. 2017-5 (2017-1 I.R.B. 230)

For practitioners that generally review the annual revenue procedures, this year differs from the usual changes. The IRS consolidated the revenue procedures applicable to exempt organizations (Rev. Proc. 2016-5 and Rev. Proc. 2016-10 in whole and Rev. Proc. 2016-4 and Rev. Proc. 2016-8 in part) into Rev. Proc. 2017-5. Hopefully, this change will make the lives of practitioners easier instead of requiring them to sort through four different lengthy revenue procedures.

Rev. Proc. 2017-5 also clarified a number of issues, including the following:  

  1. Form 8976, Notice of Intent to Operate Under Section 501(c)(4), (as required to be filed by an organization described in §501(c)(4)) and Form 8871, Political Organization Notice of Section 527 Status, (as required to be filed by any political organization that is to be treated as a §527 organizations) are not requests for a determination and, therefore, are not subject to the guidance provided in Rev. Proc. 2017-5. 

  2. The annual guidance regarding determination letter requests has been clarified and consolidated into general guidance applicable to all determination requests and guidance applicable only to certain types of determination letter requests. 

  3. Agricultural research organizations and organizations that have a pending application for recognition are added to the list of organizations that may not use Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code

  4. References to employee plans and obsolete provisions have been deleted, and references to EO technical and related transition rules have been removed. 

  5. Nonexempt charitable trusts under §4947(a)(1) seeking a determination that it is described in §509(a)(3) should be submitted on Form 8940.  

Notice 2017-10

The IRS is cracking down on promoters that are syndicating or have syndicated conservation easement transactions purporting to give charitable contribution deductions in amounts that significantly exceed the amount invested. Generally, the promoters identify or form a pass-through entity, syndicate an ownership interest in the pass-through entity that owns the real property, and obtain an appraisal that significantly inflates the value of the conservation easement. Once an investor invests in the pass-through entity, the pass-through entity donates the conservation easement. Meanwhile, the investor takes a charitable contribution deduction, often relying upon the pass-through entity’s holding period for the real property to treat the donation as long-term capital gain property, and the promoter receives a fee or other considerations.

The IRS has determined that these transactions and other similar transactions are listed transactions and that any person that entered into any such transaction on or after January 1, 2010 must disclose such transaction as described in Reg. §1.6011-4. Material advisors and appraisers who make a tax statement on or after January 1, 2010 with respect to any such transaction also has disclosure and list maintenance obligations under §6111 and §6112. The disclosure statement must be filed after December 23, 2016 and prior to May 1, 2017 with the Office of Tax Shelter Analysis.

The IRS states in Notice 2017-10 that participants required to disclose but fail to do so will be subject to penalties under §6707A and an extended period of limitations under §6501(c)(10). Material advisors will be subject to penalty under §6708(a) for failure to maintain or provide to the IRS lists of investors to the IRS. Additionally, the IRS may impose penalties under §6662, §6662A, §6694, and §6695A.  

T.D. 9797 (81 Fed. Reg. 86,953 (Dec. 2, 2016))

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 introduced legislation mandating that estates required to file Form 706 must also file a supplemental statement, Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, with the Secretary and furnish Form 8971, Schedule A to each person acquiring an interest in the property reported on the Form 706. Basically, Form 8971 requires estates to report the basis of property passing from the decedent’s gross estate. The IRS, however, extended the deadline for reporting on numerous occasions because it wanted to issue additional guidance. 

The IRS finally issued final regulations regarding Form 8971. The final regulations provide that executors and other persons required to file Form 8971 and Form 8971, Schedule A after July 31, 2015 and before June 30, 2016 need not have done so until June 30, 2016. Moving forward for estates that do not fall within the transitional relief period, estates will be subject to §6035, which requires the executor to file Form 8971 and furnish Form 8971, Schedule A no later than the earlier of 30 days after the date the estate tax return was required to be filed or was actually filed.

 

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