January 2020 / United States

The US Treasury Department and the US Internal Revenue Service (IRS) released final regulations (TD 9890) to provide guidance on certain due diligence and reporting rules applicable to persons making certain US source payments to foreign persons, and guidance on certain aspects of reporting by foreign financial institutions on US accounts. The final regulations were published in the Federal Register on 2 January 2020. The final regulations incorporate the modifications in the proposed regulations (REG-132881-17) that were published on 18 December 2018. The final regulations are designated Treasury Regulations sections 1.1441.-0, 1.1441-1, 1.1441-2, 1.1441-6, 1.1441-7, 1.1471-0, 1.1471-3, 1.1471-4, 1.1474-1, and 1.6049-6. The final regulations are effective on 2 January 2020. The final regulations contain various applicability dates.

On 2 January 2019, the US Internal Revenue Service (IRS) issued Revenue Procedure 2020-7 with its updated list of international tax issues on which it will not accept applications for private letter rulings and determination letters. Revenue Procedure 2020-7 includes two lists of international no-ruling areas, i.e. (i) areas in which rulings or determination letters will not be issued, and (ii) areas in which rulings or determination letters will "not ordinarily be issued". Inclusion of an item on the "not ordinarily be issued" list means that the IRS will not issue a private letter ruling or determination letter on the issue absent unique and compelling reasons given by the taxpayer that would justify a ruling or determination letter. Revenue Procedure 2020-7 became effective on 2 January 2020. Revenue Procedure 2020-7 has been issued as part of the IRS's annual series of revenue procedures for obtaining guidance from the IRS National Office with respect to the tax treatment of specific transactions.

On 2 January 2020, the US Internal Revenue Service (IRS) issued its updated procedures for private letter rulings and other guidance from the IRS National Office. The procedures, effective 2 January 2020, are as follows:

• Revenue Procedure 2020-1, with the procedures for taxpayers to obtain private letter rulings and other guidance on issues under the jurisdiction of the following Associate Chief Counsel's offices: Corporate; Financial Institutions and Products; Income Tax and Accounting; International; Passthroughs and Special Industries; Procedure and Administration; and Tax Exempt and Government Entities;
• Revenue Procedure 2020-2, with procedures for the above Associate Chief Counsel's offices to issue Technical Advice Memoranda (TAMs) to IRS directors and IRS appeals area directors;
• Revenue Procedure 2020-3, with a listing of the provisions of the US Internal Revenue Code on which the above Associate Chief Counsel's offices, apart from International, will not issue private letter rulings or determination letters;
• Revenue Procedure 2020-4, with information on the types of advice provided by the Commissioner, Tax Exempt and Government Entities Division, Employee Plans Rulings and Agreements Office, including procedures for issuing determination letters and letter rulings;
• Revenue Procedure 2020-5, with procedures for applying for and issuing determination letters in the Exempt Organization (EO) area; and
• Revenue Procedure 2020-7, with a listing of the provisions of the US Internal Revenue Code on which the Associate Chief Counsel (International) will not issue private letter rulings or determination letters.

The above procedures are updated annually and published in the first IRS Internal Revenue Bulletin (IRB) of each year.

The US Social Security Administration has issued a fact sheet with the 2020 wage ceiling amount for the Old Age Survivors Disability Insurance (OASDI) portion of US social security taxes, which are imposed by the Federal Insurance Contribution Act (FICA). The FICA is composed of two components: OASDI and Medicare or Hospital Insurance. The Social Security Administration has also released information on the 2020 rates and limits for the OASDI, Medicare and SSI (Supplemental Security Income) programs, as well as a related News Release dated 10 October 2019. The 2020 wage ceiling amount for the OASDI portion of the FICA tax is USD 137,700, which is an increase from the 2019 ceiling of USD 132,900. For 2020, employees are subject to OASDI tax on wages up to this amount at the rate of 6.20%. Employers are also required to pay OASDI tax for their employees at the same rate. Earnings above the wage ceiling amount are not subject to OASDI tax. Employees and employers are also subject to Medicare tax at the rate of 1.45%, but there is no limit placed on the amount of wages subject to the Medicare tax. Individuals with wages of more than USD 200,000 (USD 250,000 for married taxpayers filing jointly and USD 125,000 for married taxpayers filing separately) pay an additional Medicare tax at a rate of 0.9% beginning in 2013. Self-employed individuals must pay their own portion of the US social security taxes plus the portion that would otherwise be paid by an employer. The combined OASDI tax rate for self-employed individuals for 2020 is thus 12.40%, and the combined rate for the Medicare tax is 2.90%. The USD 137,700 ceiling amount applies to the OASDI tax imposed on the net earnings of the individuals from self-employment. Foreign nationals working in the United States are subject to OASDI and Medicare taxes unless exempted under a Social Security Totalization Agreement between the United States and their country of residence.

The US Treasury Department and the US Internal Revenue Service (IRS) released final regulations (TD 9889) to provide guidance on the extent to which taxpayers may elect the Federal income tax benefits provided by section 1400Z–2 of the US Internal Revenue Code (IRC) with respect to certain equity interests in a qualified opportunity fund (QOF). The final regulations are published in the Federal Register on 13 January 2020. The IRS also issued a related News Release (IR-2019-212) dated 19 December 2019. The Tax Cuts and Jobs Act (TCJA) added IRC sections 1400Z-1 and 1400Z-2. IRC section 1400Z-1 addresses the designation of population census tracts located in the 50 US states, US territories, and the District of Columbia (Washington DC) as qualified opportunity zones (QOZs). IRC section 1400Z-2 provides two main Federal income tax benefits to eligible taxpayers that make longer-term investments of new capital in one or more designated QOZs through QOFs and QOZ businesses, including:

• electing to defer until an inclusion event or 31 December 2026, whichever is earlier, the inclusion in gross income of certain gains that would otherwise be recognized in a taxable year if the taxpayer invests a corresponding amount of such gain in a qualifying investment in a QOF within a 180-day statutory period, combined with:
  • potentially excluding 10% of such deferred gain from gross income if the eligible taxpayer holds the qualifying investment in the QOF for at least five years; and
  • potentially excluding addition 5% of such deferred gain if the eligible taxpayer holds that qualifying investment for at least seven years; and
• electing to exclude from gross income any appreciation on the eligible taxpayer's qualifying investment in the QOF if the eligible taxpayer holds the qualifying investment for at least 10 years.

The final regulations provide guidance for taxpayers eligible to make an election to temporarily defer the inclusion in gross income of certain eligible gain. The final regulations also address such taxpayers' eligibility to increase the basis in their qualifying investment equal to the fair market value of the investment on the date that it is sold, after holding the equity interest for at least 10 years. The final regulations provide a list of inclusion events. Further, the final regulations provide guidance to determine the amount of income that must be included at the time of the inclusion event or 31 December 2026. In addition, the final regulations address the various requirements that must be met to qualify as a QOF, as well as the requirements an entity must meet to qualify as a QOZ business, including the requirement that a QOF or QOZ business engage in a trade or business. The final regulations are effective on 13 March 2020. The final regulations contain various applicability dates. Related IRS forms, IRS instructions and other information are scheduled to be released in January 2020.

On 17 January 2020, the US Internal Revenue Service (IRS) issued a News Release (IR-2020-16) to announce that the IRS is open to considering relief for limited circumstances in which double taxation results from the transition tax on foreign earnings under section 965 of the US Internal Revenue Code (IRC), as amended by the Tax Cuts and Jobs Act (TCJA). The IRS notes that, in unique circumstances where a corporation paid an unusual dividend for business reasons, not because of the enactment of the TCJA, double taxation may result if (1) the same earnings and profits of foreign corporations are taxed both as dividends and under IRC section 965; and (2) there is no significant reduction in the resulting tax by the application of foreign tax credits (FTCs). The IRS invites taxpayers to contact the IRS Office of Associate Chief Counsel (International) if the taxpayers have fact patterns that may fit such limited circumstances.

The US Treasury Department and the Internal Revenue Service (IRS) have issued final regulations (TD 9892) that update the due dates and available extensions of time to file certain US tax returns and information returns. The final regulations were published in the Federal Register on 30 January 2020. The final regulations remove the temporary regulations (TD 9821) that were published on 20 July 2017 and were applicable for tax returns and information returns filed after 20 July 2017. The final regulations also adopt the proposed regulations (REG–128483–15), published on 20 July 2017, with only non-substantive revisions. The final regulations are effective 30 January 2020. The final regulations generally apply to returns filed on or after 30 January 2020. The final regulations are designated Treasury Regulation sections 1.1446-3, 1.6012-6, 1.6031(a)-1, 1.6032-1, 1.6033-2, 1.6041-2, 1.6041-6, 1.6072-2, 1.6081-1, 1.6081-2, 1.6081-3, 1.6081-5, 1.6081-6, 1.6081-9, and 31.6071(a)-1.