December 2021 / United States

December 8 2021

Beneficial Owners Will Soon Need to Register with US Treasury Under New Law, Proposed Regulations

The Financial Crimes Enforcement Network (FinCEN) of the Treasury Department issued a Notice of Proposed Rulemaking for the beneficial ownership information reporting provisions within the Corporate Transparency Act (CTA). The FinCEN also issued a related Press Release and Fact Sheet, both of which are dated 7 December 2021.

The proposed rule is designed to prevent bad actors from using otherwise legal entities, such as shell companies, to conceal the proceeds of their corrupt and criminal acts.

The proposed rule would delineate, among other things, who must report beneficial ownership information, what information they must provide, and when they must do so. For instance, reporting companies would be required to identify the following two categories of individuals:

  • the beneficial owners of the entity, including any individuals who:
    • exercise substantial control over a reporting company; or
    • own or control at least 25% of the ownership interests of a reporting company; and
  • individuals who have filed an application to form the company in the United States or register it to do business in the United States.

The CTA forms a part of the Anti-Money Laundering Act of 2020 and lays out beneficial ownership information reporting requirements for business entities created in or registered to do business in the United States.

December 14 2021

California Clarifies Sales Tax Regs: Marketplace Sales are Not Drop Shipments

The California Department of Tax and Fee Administration has amended its sales and use tax regulations on drop shipments to clarify that marketplace sales are generally not considered drop shipment transactions that trigger state sales tax collection and remittance requirements on the drop shipper. Under California law, taxpayers making drop shipments to California consumers on behalf of the "true retailer" are treated as "retailer" and are required to collect and remit sales tax if:

  • the sale is on behalf of an out-of-state retailer; and
  • the out-of-state retailer does not hold a California seller's permit or certificate of registration-use tax.

The amended regulations clarify that marketplace facilitators are liable for California sales tax collection and remittance requirements triggered by sales from out-of-state marketplace sales that otherwise meet the state's default drop shipment rules. In this instance, the marketplace facilitator, not the drop shipper, is considered the retailer and thus remains liable for tax collection on qualifying marketplace sales.

The amended regulations also clarify that a person may overcome the presumption of being a drop shipper by:

  • accepting a timely resale certificate in good faith from the customer or person in California to whom the property is delivered, containing all essential elements, including:
    • the customer's valid California seller's permit number; or
    • an explanation as to the reason why the customer is not required to hold a California seller's permit and a statement that the customer is:
      • registered with the Department for a Certificate of Registration – Use Tax, plus the customer's valid Certificate of Registration; and
      • a marketplace seller and purchasing the property pursuant to a sale facilitated by a registered marketplace facilitator that is the retailer for purposes of the sale, plus the marketplace facilitator's name and valid seller's permit number or Certificate of Registration – Use Tax account number;
  • establishing that the person's customer was a:
    • retailer engaged in business in California at the time of the sale; or
    • a marketplace seller and purchased the property through its sale facilitated by a marketplace facilitator-retailer.

The Department adopted the amended rules on 30 November 2021 and published the same in the California Regulatory Notice Register on 10 December 2021.

December 15 2021

IRS Provides Guidance on Reinstated Superfund Chemical Taxes

The US Internal Revenue Service (IRS) has issued Notice 2021-66 providing guidance on the excise taxes imposed on certain chemical substances under sections 4661 and 4671 of the US Internal Revenue Code (IRC) (collectively, the "Superfund chemical taxes").

The Superfund chemical taxes include the section 4661(a) tax on sales of taxable chemicals and the section 4671(a) tax on sales or uses of imported taxable substances that use one or more taxable chemicals in their manufacture or production.

Effective 1 July 2022, the Infrastructure Investment and Jobs Act (IIJA) reinstates the Superfund chemical taxes which, as previously in effect, expired on 31 December 1995.

The IIJA requires the US Treasury Department and IRS to publish an initial list of taxable substances under IRC section 4672(a) no later than 1 January 2022. Notice 2021-66 provides that initial list.

Notice 2021-66 also discusses the registration requirements under IRC section 4662(b)(10)(C) and (c)(2)(B) for the exemption of certain sales and uses of taxable chemicals from the Superfund chemical taxes.

Further, Notice 2021-66 provides the procedural rules that taxpayers subject to the Superfund chemical taxes must follow.

Pending further guidance, Notice 2021-66 suspends Notice 89-61, as modified by Notice 95-39, which set up the previous framework for adding or removing certain substances from the list of taxable substances.

Finally, Notice 2021-66 requests public comments on whether any issues related to the Superfund chemical taxes require clarification or additional guidance. Comments should be submitted in writing by 28 January 2022.

Notice 2021-66 will appear in the Internal Revenue Bulletin (IRB) 2021-52, dated 27 December 2021.

Note: Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), informally referred to as the US federal Superfund law or the Superfund, to create a hazardous substance clean-up programme. For the programme, the CERCLA established the "Hazardous Substance Response Trust Fund," which was funded, in part, by the Superfund chemical taxes.

December 15 2021

IRS Issues Practice Unit on Base Erosion Anti-Abuse Tax

The US Internal Revenue Service (IRS) has released a Practice Unit with an overview of the base erosion and anti-abuse tax (BEAT) under section 59A of the Internal Revenue Code (IRC).

The Practice Unit is entitled "IRC 59A Base Erosion Anti-Abuse Tax Overview" (INT-C-245). The Practice Unit, released on 14 December 2021, indicates a revised date of 9 August 2021.

IRC section 59A imposes the BEAT, which is a corporate minimum tax imposed on taxpayers who make certain base erosion payments to foreign related parties beginning after 31 December 2017 (see Note 1).

The Practice Unit discusses various topics related to the BEAT, including:

  • taxpayers subject to the BEAT;
  • base erosion payments;
  • base erosion tax benefits;
  • the steps required for calculating the BEAT amount;
  • certain reporting requirements;
  • aggregate groups;
  • BEAT waiver exceptions;
  • the application of the BEAT to partnerships; and
  • an anti-abuse rule with respect to certain basis step-up transactions.

Note 1: The BEAT generally applies to corporations that have annual gross receipts for the preceding 3 years of at least USD 500 million and a base erosion percentage of at least 3% for the taxable year (2% for certain taxpayers that include a bank or registered securities dealer in their affiliated group). If the taxpayer has an aggregate group, the determination for both of those figures is made at the aggregate group level.

Note 2: Practice Units, issued by the Large Business & International (LB&I) division of the IRS, serve as both job aids and training materials on tax issues for IRS staff. Practice Units are not official pronouncements of law or directives and thus may not be used or cited as precedent.

December 16 2021

IRS Issues Practice Unit on Investigations of Tax Shelters

The US Internal Revenue Service (IRS) has released a Practice Unit explaining its procedures for investigations into tax shelter promoters.

The Practice Unit is entitled "Tax Shelter Promoter Investigations Under IRC 6700" (COR-P-022). The Practice Unit, released on 14 December 2021, indicates a revised date of 25 November 2021.

The Practice Unit states that section 6700 of the US Internal Revenue Code (IRC) permits assertion of penalties against any person who:

  • organizes, or sells any interest in:
    • a partnership or other entity;
    • an investment plan or arrangement; or
    • any other plan or arrangement; and
  • makes, or causes someone else to make, a fraudulent statement about any material matter or gross valuation overstatement.

The goal of a promoter investigation is to:

  • identify and quickly terminate the abusive promotion or activity;
  • assert promoter penalties where applicable; and
  • identify participants in the abusive transaction.

The Practice Unit lists the following as the steps of a promoter investigation:

  • determining if a promoter has engaged in conduct that violates the applicable civil penalty statutes;
  • obtaining participant lists;
  • determining if:
    • the promotion is reoccurring or likely to reoccur; and
    • the promoter should be referred for an injunction; and
  • ensuring compliance with the requirements of IRC section 6111 (dealing with the disclosure of tax shelter transactions) and IRC section 6112 (dealing with the requirement for material advisors of tax shelter transactions to keep lists of advisees).

NotePractice Units, issued by the Large Business & International (LB&I) division of the IRS, serve as both job aids and training materials on tax issues for IRS staff. Practice Units are not official pronouncements of law or directives and thus may not be used or cited as precedent.