December 2019 / United States

On 4 December 2019, the Treasury Inspector General for Tax Administration (TIGTA) released its semi-annual report to Congress on its oversight of the US Internal Revenue Service (IRS). The report covers the period between 1 April 2019 and 30 September 2019. The report contains the details of audits conducted by the TIGTA during the reporting period with regard to the areas that the TIGTA has identified as among the IRS's most important management and performance challenges of Fiscal Year 2019, including:

• the implementation of the Tax Cuts and Jobs Act (TCJA) and other recent tax law changes; and
• taxpayer rights with a focus on cybersecurity and taxpayer protection from identity theft

The TIGTA was created by Congress in 1998 to ensure that the US tax system is effectively, efficiently and fairly administered by the IRS.

On 6 December 2019, the US Internal Revenue Service (IRS) issued Revenue Ruling 2019-28 with the announcement of the interest rates on tax overpayments (i.e. tax refunds) and tax underpayments (i.e. tax assessments and late tax payments) for the calendar quarter beginning 1 January 2020. The IRS also issued an accompanying News Release (IR-2019-201) dated 6 December 2019. The interest rates, which apply to amounts bearing interest during that calendar quarter, are as follows:

• 5% for non-corporate overpayments;
• 4% for corporate overpayments up to USD 10,000;
• 2.5% for corporate overpayments to the extent in excess of USD 10,000;
• 5% for non-corporate and corporate (other than large corporate) underpayments; and
• 7% for large corporate underpayments (i.e. underpayments in excess of USD 100,000).

Revenue Ruling 2019-28 also includes:

• interest factors for daily compound interest for an annual rate of 0.5% (Appendix A); and
• tables including overpayment and underpayment interest rates for prior periods.

The interest rates on overpayments and underpayments for the first quarter of 2020 remain the same as the rates announced for the fourth quarter of 2019. Revenue Ruling 2019-28 will appear in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2019-52, dated 23 December 2019.

The US Internal Revenue Service (IRS) has issued Revenue Procedure 2019-42 to identify circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the US Internal Revenue Code (IRC) (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under IRC section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. Revenue Procedure 2019–42 was published in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2019-49 dated 2 December 2019. Revenue Procedure 2019–42 applies to any income tax return filed on 2019 tax forms for a taxable year beginning in 2019, and to any income tax return filed in 2020 on 2019 tax forms for short taxable years beginning in 2020.

The US Treasury Department and the US Internal Revenue Service (IRS) issued final regulations (TD 9887) on certain financial products providing for payments that are contingent upon or determined by reference to US source dividend payments. The final regulations are scheduled to be published in the Federal Register on 17 December 2019. The final regulations provide: (i) guidance defining the term "broker" for purposes of section 871(m) of the US Internal Revenue Code (IRC); (ii) guidance related to when the delta of an option that is listed on a foreign regulated exchange may be calculated based on the delta of that option at the close of business on the business day prior to the date of issuance; and (iii) guidance identifying which party to a "potential section 871(m) transaction" is responsible for determining whether a transaction is a "section 871(m) transaction" when multiple brokers or dealers are involved in the transaction. The final regulations adopt the proposed regulations (REG-135122-16) that were published on 24 January 2017 without any substantive change. The final regulations will be effective from 17 December 2019. The proposed regulations are designated Treasury Regulation section 1.871-15.

The US Internal Revenue Service (IRS) issued Revenue Ruling 2019–27 to announce the annual interest rate to be used to calculate the interest charge for deferred income of US domestic international sales corporations (DISCs). Revenue Ruling 2019–27 was included in the IRS Internal Revenue Bulletin (IRB 2019-51) dated 16 December 2019. The rate is prescribed pursuant to section 995(f) of the US Internal Revenue Code (IRC), which requires that shareholders of a DISC must pay an annual interest charge on the tax liability associated with DISC income that is deferred from taxation under the IRC, i.e. the income of the DISC that is not currently taxed to the shareholders. The calculation under IRC section 995(f) is made by multiplying the shareholder's DISC-related deferred tax liability for the year by the applicable base period T-bill rate (i.e. the average of the 1-year US Treasury bill yields for the base period). Revenue Ruling 2019-27 provides that the base period T-bill rate for the 1-year period ending 30 September 2019 is 2.32%. The rate is required to be compounded daily. A table with the daily compounding factors is included in the ruling.