David E. Colmenero and John Strohmeyer 2016-12-20 18:05:22
The past year has seen significant federal and state legislative and regulatory action for Texas tax lawyers, including a comprehensive overhaul of partnership audit rules by Congress, the issuance of two controversial sets of regulations by the U.S. Department of the Treasury and IRS, and an ongoing regulatory overhaul of Texas administrative rules by the Texas Comptroller of Public Accounts. Revised Partnership Audit Rules On November 2, 2015, President Barack Obama signed into law a set of statutory provisions that will substantially overhaul the manner in which many partnerships and pass-through entities are audited. The Bipartisan Budget Act of 2015 will generally apply to partnership returns filed for partnership tax years beginning after December 31, 2017. Throughout the past year, both taxpayers and tax practitioners have been working to understand the new rules, identify key areas implicated, and develop strategies to address those issues. On March 28, 2016, the IRS invited comments on the new rules and the State Bar of Texas Tax Section submitted comments in April. In August, the Treasury Department issued temporary regulations, which provide guidance on making an early election application under the new legislation. IRC Sec. 385 Regulations The IRS issued finalized and temporary regulations under Section 385 that address how to determine whether certain interests in a corporation are considered debt or equity. These regulations were in response to the increasing number of corporate inversions and earnings-stripping techniques used by some corporate taxpayers to reduce their U.S. tax liability by shifting income to foreign entities. The proposed regulations consisted of three new sets of rules: (1) authority to treat certain interests in a corporation as part debt and part equity (Prop. Treas. Reg. § 1.385-1), (2) new documentation requirements for related party debt to be treated as such (Prop. Treas. Reg. § 1.385-2), and (3) rules for the re-characterization of certain related party debt as equity (Prop. Treas. Reg. § 1.385-3, -4). The final and temporary regulations substantially revise the proposed regulations to target the transactions of greatest concern and remove some of the more controversial elements of the proposed regulations. IRC Sec. 2704 Proposed Regulations In August, the IRS issued a much anticipated set of proposed regulations under Section 2704 of the Internal Revenue Code that provide rules for determining the value of interests in entities held by family members for transfer tax purposes. Thousands of comments were submitted to the IRS during the comment period, including some from the State Bar Tax Section. In addition, two members of the Tax Section—Celeste Lawton and Laurel Stephenson—testified in the Tax Section’s name before the Department of the Treasury and the IRS in Washington, D.C., in December. Two other members of the Tax Section testified in other capacities. Texas Comptroller Review of Rules On the state side, the Texas Comptroller has been actively proposing revisions to a large number of the agency’s rules. The regulatory provisions that are either in the process of being amended or have been recently amended are too many to list. Most notably, however, the comptroller issued a set of proposed revisions to the procedural rules that govern the administrative hearings process. Members of the Tax Section have contributed commentary either orally or in writing, including a submission in September addressing proposed amendments to Comptroller Rule 3.292, Repair, Remodeling, Maintenance and Restoration of Tangible Personal Property. DAVID E. COLMENERO is a partner in Meadows Collier in Dallas. He practices in the areas of federal tax litigation, state tax litigation, and wealth transfer tax litigation. Colmenero is the 2016-2017 chair of the Tax Section of the State Bar of Texas. He can be reached at email@example.com. JOHN STROHMEYER is an associate of Crady, Jewett & McCulley in Houston where his practice focuses on estate planning and estate administrations for high-networth individuals, including resolving international tax issues for his clients. He is the co-chair of the International Tax Committee of the State Bar of Texas Tax Section, a member of the 2016-2017 Tax Leadership Academy of the State Bar of Texas Tax Section, and is a 2015-2017 fellow of the American Bar Association Section of Real Property, Trust and Estate Law.
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