August 2024 / United States

The Internal Revenue Service today announced interest rates will remain the same for the calendar quarter beginning Oct. 1, 2024.

For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily.

Here’s a complete list of the new rates:

• 8% for overpayments (payments made in excess of the amount owed), 7% for corporations.
• 5.5% for the portion of a corporate overpayment exceeding $10,000.
• 8% for underpayments (taxes owed but not fully paid).
• 10% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 2024.

See Revenue Ruling 2024-18 PDF for details, which announces the rates of interest, and will appear in Internal Revenue Bulletin 2024-37, dated Sept. 9, 2024.

Source: irs.gov

The Department of Treasury and the IRS have proposed amending federal estate tax regulations that apply to estates of decedents passing property to, or for the benefit of, a non-citizen spouse in a domestic trust for which the executor of the decedent's estate has made an election to be a qualified domestic trust (QDOT) and the trust satisfies all of the requirements for such treatment under applicable federal tax law and regulations. The proposed regulations, which were released on 20 August 2024, will appear in the Federal Register (REG-119683-22) on 21 August 2024.   Procedure for Filing Required Security Instruments Under current Treasury Regulations No. §20.2056A-2(d)(1)(i), QDOTs with assets whose value exceeds USD 2 million must satisfy one of three alternative security arrangements to secure the payment of the IRC section 2056A estate tax. Treasury Regulations No. §20.2056A2(d)(1)(i)(B) and (C), respectively, describe the requirements and form of the bond and the letter of credit that may be used as the required security arrangement. These provisions also require that the bond or letter of credit be filed with the decedent's federal estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States). Under the proposed regulations, a security instrument provided in compliance with Treasury Regulations No. §20.2056A-2(d) is not to be attached to the decedent's federal estate tax return (Form 706 or Form 706-NA). Instead, it is to be filed by submitting it directly to the Estate Tax Advisory Group. The proposal seeks to address the issue that security instruments attached to a decedent's federal estate tax return are not easily identified, hindering prompt forwarding to the Estate Tax Advisory Group.   Removing Outdated References The proposed regulations seek to remove outdated references to §20.2056A-2T(d), which have already been finalized as §20.2056A-2(d). In addition, the proposed regulations also seek to correct outdated references to a publication, to IRS officials and offices, and to procedures and addresses to be used by certain trustees to provide a security instrument to satisfy the requirements of a QDOT. The proposed regulations also seek to update the definition of "finally determined" in Treasury Regulations No. §20.2056A-2(d)(1)(iii) because the current definition of that term includes an outdated reference to the issuance of an estate tax closing letter. The proposed regulations would also update Treasury Regulations §§20.2056A-4 and 20.2056A-11 to properly identify the titles of IRS officials authorized to enter into agreements with regard to the section 2056A estate tax and to grant extensions of time to file a Form 706-QDT, US Estate Tax Return for Qualified Domestic Trusts, or to pay any section 2056A estate tax.   Source: IBFD Tax Research Platform News

The Department of Treasury and the IRS have proposed regulations on the time for making and revoking certain elections relating to foreign currency gains and losses.

Elections under § 1.954-2(g)

Under section 954(c)(1)(D) of the Internal Revenue Code (IRC) and Treasury Regulations §1.954-2(g), foreign personal holding company income (FPHCI) includes the excess of foreign currency gains over foreign currency losses attributable to any IRC section 988 transactions. This is important because FPHCI is a type of income that can be subject to US tax under Subpart F rules, even if it has not been distributed to US shareholders.

With respect to a controlled foreign corporation (CFC)'s computation of its FPHCI, US shareholders that are controlling US shareholders of a CFC may elect to:

• exclude foreign currency gains and losses otherwise includible in the CFC's FPHCI computation under Treasury Regulations §1.954-2(g) and instead include such foreign currency gains and losses in the category (or categories) of Subpart F income to which such gains and losses relate (Treasury Regulations §1.954-2(g)(3)); or
• treat as FPHCI all foreign currency gains and losses attributable to any section 988 transaction (except those described in §1.954-2(g)(5)) and any section 1256 contract that would be a section 988 transaction if not for section 988(c)(1)(D) (Treasury Regulations §1.954-2(g)(4)).

Controlling US shareholders make either of the above elections "on behalf of the CFC by filing a statement with their original income tax return for the taxable year of the US shareholders ending with or within the taxable year of the CFC for which the election is made, clearly indicating that the election has been made."

Under Treasury Regulations §1.954-2(g)(3)(iii) and (g)(4)(iii), the controlling US shareholders may revoke an election with the Commissioner's consent.

The proposed regulations provide that:

• controlling US shareholders may make a §1.954-2(g) election on behalf of a CFC by filing a statement with the original income tax returns for the taxable years of the controlling US shareholders in which or with which the taxable year of the CFC for which the election is made ends, clearly indicating that the election has been made;
• controlling US shareholders may revoke a §1.954-2(g) election on behalf of a CFC by filing a statement with their original income tax returns for the taxable years of the controlling US shareholders in which or with which the taxable year of the CFC for which the revocation is made ends, clearly indicating that the §1.954-2(g) election has been revoked;
• controlling US shareholders would be precluded from revoking a §1.954-2(g) election made on behalf of a CFC (including an initial election) until the sixth taxable year following the year in which the election was made; and
• if a CFC's controlling US shareholders revoke a §1.954-2(g) election, they may not make a new §1.954-2(g) election on behalf of the CFC until the sixth taxable year following the year in which the previous election was revoked.

Election under Proposed § 1.988-7(c)

IRC section 988 governs the tax treatment of foreign currency transactions. Under proposed regulations released in 2017, a taxpayer, including a CFC, could elect to use a mark-to-market method of accounting for section 988 gains and losses with respect to certain section 988 transactions.

According to the Treasury and the IRS, the 2017 proposed regulations provided too much flexibility by allowing taxpayers to make the election after knowing whether it would be beneficial, and thus selectively recognize losses. To address this, the Treasury and the IRS propose that the timing for making and revoking a §1.988-7 election, should align with the timing rules for making an election under IRC section 475. Section 475 governs the use of the mark-to-market accounting method for dealers in commodities and traders in securities or commodities.

Under the proposed rules, taxpayers must make the §1.988-7 election on the tax return for the year immediately preceding the year for which the election applies. Once made, the election would be effective for the taxable year for which it is made and all subsequent years. The taxpayer may revoke the election only with the consent of the IRS Commissioner. In addition, under the proposed rules, a taxpayer wishing to adopt the mark-to-market method under section 1.988-7 must receive the IRS Commissioner's consent to change their accounting method.

Source: IBFD Tax Research Platform News