James W. Rahmlow, The Daily Record Newswire
In a recent Chief Counsel Advice, the IRS indicated that filing a consolidated federal tax return by a parent with its subsidiary is allowable only in those years where the parent had at least an 80 percent ownership in the subsidiary.
In the facts of the advice, the parent originally acquired greater than 50 percent but less than 80 percent of the subsidiary in a tax year. The parent had agreed to ultimately acquire all of the outstanding stock of the subsidiary but did not meet the 80 percent ownership requirement in the initial tax year.
The shares that were not purchased by the parent were surrendered to a third-party escrow agent and remained in the names of the selling shareholders. The shares were released from escrow as they were subsequently purchased by the parent.
The Chief Counsel’s rationale was that the shareholders retained the right to vote the escrowed stock as well as the right to receive dividends and distributions. A separate subsidiary federal income tax return had to be filed in the less than 80 percent year.
September interest rates announced
In Rev. Rul. 2014-22, the IRS released its short-term, mid-term and long-term applicable interest rates for September 2014. For required transactions, below is a summary of the monthly rates.
Short-term: AFR: 0.36%, Adjusted AFR: 0.36%
Mid-term: AFR: 1.84%, Adjusted AFR: 1.35%
Long-term: AFR: 2.93%, Adjusted AFR: 2.9%
Back to fax and snail mail
As a result of the discontinuance of the Disclosure Authorization program due to low usage, the IRS recently announced that prospective Forms 2848, Power of Attorney and Declaration of Representative documents must be either faxed to the IRS or filed on paper and sent by mail.
The Disclosure Authorization program allowed taxpayers and their representatives to electronically file the Form 2848. It should be noted that the Form 2848 has been updated to remove all references to electronic filing.
The IRS has informally indicated that they are exploring an updated online system but for now, we are back to tradition.
Disregarded entity’s accounting method
In a recent Chief Counsel Advice, the IRS indicated that a limited liability company that is treated as a disregarded entity, may, if otherwise qualifying, use a different method of accounting from its corporate owner.
Historically, a not disregarded entity (ex: wholly owned C corporation subsidiary) was entitled to use its own method of accounting if it was operated as a separate trade or business from its owner.
Specifically, under Code Sec. 446, a taxpayer with two trades or businesses may use different accounting methods for each trade or business provided that the methods clearly reflect income for the particular trade or business.
For example, a taxpayer’s home building business may use a different method of accounting from its personal service business. In the advice, Chief Counsel indicated that whether a taxpayer has two separate lines of business is a factual determination. The fact that an entity is disregarded, does not limit the ability to be treated separately.
IRS phone scam repeat
Acknowledging more than 90,000 complaints that the Treasury Inspector General for Tax Administration has received to date through its telephone hotline, the IRS has repeated its caution to taxpayers concerning the warning signs that a taxpayer may be subject to a scam in IR-2014-81.
First and foremost IRS Commissioner John Koskinen emphasized that a taxpayer’s “…..first contact with the IRS will not be by a telephone call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment …”
In addition to the caution on phone calls, the IRS wants taxpayers to know that the IRS never asks for credit card, debit card or prepaid card information over the telephone and never requests immediate payment over the telephone.
Email tax tips
Even outside of the filing season, the IRS periodically issues tax information via email. Tips covered include: common errors to avoid, where to get free tax help, guidance on available tax deductions and credits, how e-file can make filing easier, and how to file an extension or amend your return.
To sign up for these free emails, go to Subscribe to IRS Tax Tips and click on Subscribe / Unsubscribe.
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James W. Rahmlow, CPA, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at jrahmlow@mmb-co.com.
