The Internal Revenue Service and the Treasury Department have issued a notice saying they intend to amend the Section 987 regulations on foreign currency gains and losses, delaying the applicability date by one more year.
Last October, the IRS and the Treasury issued Notice 2017-57, which previously delayed the applicability date by one year, and in Notice 2018-57, which came out Wednesday they said they were delaying the regulations by another year.
The final regulations were originally issued in December 2016, in the waning days of the Obama administration, changing how a U.S. company can measure the taxable income of a foreign business unit where the currency differs from its U.S. owner. The regulations were supposed to take effect Dec. 7, 2016, but they were among eight tax regulations that were identified in a July 2017 notice as ones that would be re-evaluated in accordance with an executive order signed by President Trump in the early days of his administration aimed at reducing burdensome federal regulations.
As part of that review, the Treasury Department and the IRS said they are considering changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and alternative rules for determining a section 987 gain or loss.
The Treasury Department and the IRS intend to amend the tax code so the final regulations and the related temporary regulations will apply to taxable years beginning on or after the date that is three years after the first day of the first taxable year following Dec. 7, 2016.
The Internal Revenue Service said Friday it plans to issue regulations to limit the impact of a new excise tax on the endowments of private colleges and universities under the new tax law.
Under the new guidance, a private college or university that is subject to the new 1.4 percent excise tax in the Tax Cuts and Jobs Act on net investment income, and that sells property at a gain, generally can use the property’s fair market value at the end of 2017 as its basis for calculating the tax on any resulting gain. In many instances, the new stepped-up basis rule will reduce the amount of gain subject to the new tax, the IRS pointed out. The normal basis rules will still apply for calculating any loss.
In a new Notice 2018-55 that was issued Friday, the Treasury Department and the IRS said they plan to issue proposed regulations to address this along with other matters pertaining to the new excise tax. Meanwhile, affected taxpayers such as private colleges and universities can rely on the special basis step-up rule discussed in the notice. The notice also asks for public comment on other issues that should be addressed in future guidance.
The excise tax was included in the tax overhaul legislation that Congress passed in December. The tax applies to any private college or university with at least 500 full-time tuition-paying students, more than half of whom are located in the U.S., that has an endowment of at least $500,000 per student. An estimated 40 or fewer institutions are affected, but the new tax has prompted considerable concern in the academic world. In April, a pair of lawmakers, Rep. John Delaney, D-Md., and Bradley Byrne, R-Ala., introduced bipartisan legislation, the Don’t Tax Higher Education Act, that would repeal the excise tax.
According to the notice issued Friday, the basis of property held on Dec. 31, 2017, that is later sold at a gain will be not less than its fair market value on Dec. 31, 2017, plus or minus subsequent normal basis adjustments. Similarly, the Treasury Department and the IRS said they intend to propose regulations under which losses can offset gains to the extent of gains, but no capital loss carryovers or carrybacks will be allowed.
Proposed regulations also could allow losses from property sales by related organizations to offset gains realized by other related organizations. Updates on the implementation of this and other provisions of the Tax Cuts and Jobs Act can be found on the IRS’s Tax Reform page.
The Internal Revenue Service plans to spend close to $300 million to implement the new tax law, including approximately $20 million for an estimated 450 new forms, instructions and publications.
According to a spending plan posted by The Wall Street Journal, the IRS intends to update 140 of its computer systems to handle the Tax Cuts and Jobs Act. The agency is estimating it will require 542 additional hours of employee effort to modify its existing tax-processing systems to incorporate the many changes to tax credits, deductions and brackets, as well as establish new system functionality and workflows, manage programs and integrate services, and facilitate tax reform human capital planning, acquisitions, and financial planning.
Congress set aside $320 million of the IRS's budget of $11.4 billion this year in order to handle the new tax law. The IRS is estimating that its customer service assistors will need to answer 4 million additional phone calls to maintain their current level of service, representing a 17 percent increase over fiscal year 2017.
Training and familiarizing employees to answer questions about the tax overhaul will be key. For taxpayer-facing employees who answer the phones and handle walk-in appointments at Taxpayer Assistance Centers, the IRS expects to conduct approximately 40,000 hours of training on the various provisions and changes at a cost of about $1.8 million. The estimate also includes costs for the IRS Chief Counsel to review the training materials and provide interpretative advice, the IRS noted.
The IRS also plans to conduct extensive outreach to help prepare small businesses and tax preparers, in addition to training its employees about the new tax rules. The IRS typically holds more than 1,000 outreach events a year to educate thousands of taxpayers and tax professionals. “We expect the number of events and participants to significantly increase as a result of tax reform,” said the IRS.
The IRS intends to do outreach through both traditional media and social media. The agency anticipates increased interest and participation at its main events this year. It noted that early registration at this summer’s IRS Nationwide Tax Forums is already running 10 to 15 percent ahead of last year. “We anticipate requests for face-to-face events will increase 25 to 30 percent, particularly after more published legal guidance comes out in the weeks and months ahead,” said the IRS.
In the meantime, the IRS is continuing to consolidate its processing centers in response to continued increases in electronic filing. According to a new report from the Treasury Inspector General for Tax Administration that was released Monday, IRS management announced plans in 2016 to further consolidate Tax Processing Centers from five to two by the end of fiscal year 2024 as a result of the continued decreases in paper-filed tax returns. The IRS anticipates using the projected five-year cost savings of about $266 million to focus on taxpayer service, tax enforcement and information technology.