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Business and International Tax Developments

The Chamberlain Hrdlicka Business and International Tax Developments Blawg provides updates on business and international tax.

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Posts from July 2018.

The Internal Revenue Service’s offshore voluntary disclosure program (OVDP) , which has reportedly realized $11.1 billion in payments from taxpayers hiding assets and not reporting income from interests in foreign financial accounts, is due to wind down in September as a result of declining participation rates. In 2011, for example, approximately 18,000 taxpayers filed for OVDP relief. In contrast, the IRS has reported that only 600 filed OVDP relief applications in 2017. That is quite a drop off. Nevertheless, taxpayers with undeclared foreign financial assets can still avail themselves of the IRS’s streamlined filing compliance procedures although the streamlined program may also be phased out in the near future.

As published in the first post to this blog, Section 199A, added to the Code by the Tax Cuts and Jobs Act of 2017, P.L. 115-97, and effective for taxable years beginning in 2018, allows certain noncorporate taxpayers to deduct from taxable income an amount equal to 20% of their “qualified business income”.  Specified business are precluded from using section 199A and taxpayers entitled to claim a deduction under section 199A are further subject to a ceiling rule in reducing the amount of allowable deduction to the extent of 50% of W-2 wages,  or, if greater, the sum of 25% of the W-2 wages paid with respect to a qualified trade or business plus 2.5% of the unadjusted asset basis immediately after acquisition of the qualified property.

A profits interest issued by a partnership to a service provider has been the subject of a long-standing debate by the Internal Revenue Service and taxpayers receiving such profits interest. The Service has, in general, viewed such interests that are issued in exchange for services to be “property” that is subject to current taxation under section 61(a) to the extent of the fair market value of the interest received. The Service was challenged with respect to its position on the basis that the value of the profits interest on grant was indeterminable or on the basis that the interest was not “property” under a section 83 type of approach where the profits interest was forfeitable and non-transferable. The scorecard of the reported cases in this area reflects that there were more taxpayer victories than defeats but victory did not come by accident but through careful advance planning.