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The IRS has released new proposed regulations on making and revoking certain foreign currency gain or loss elections. These new proposals withdraw 2017 proposed regs §1.954-2(g)(3)(iii) and (g)(4)(iii) and proposed §1.988-7(c) through (e) and repropose them with revisions. (Preamble to Prop Reg REG-111629-23, 8/19/2024).

The IRS received comments about the 2017 proposals from practitioners who noted that the language of §1.954-2(g)(3)(ii) is inconsistent with other CFC filing requirements, which generally must be filed by U.S. shareholders for the tax year of a CFC that ends with or within the U.S. shareholders' tax year. 

In response to those comments, the IRS has issued a new set of proposed regs.

These new proposals would revise Reg §1.954-2(g)(3)(ii) to provide that controlling U.S. shareholders could make a §1.954-2(g) election on behalf of a CFC by filing a statement, clearly indicating that the election has been made, with their original income tax returns for the tax years of the controlling U.S. shareholders in which or with which the tax year of the CFC ends.

Additionally, these proposed regulations withdraw 2017 proposed §1.954-2(g)(3)(iii) and (g)(4)(iii). The IRS' new proposals would provide that controlling U.S. shareholders revoke a §1.954-2(g) election on behalf of a CFC by filing a statement that clearly indicates the election has been revoked with their original income tax returns for the tax years of the controlling U.S. shareholders in which or with which the tax year of the CFC ends.

Under new Prop Reg §1.954-2(g)(3)(iii) and Prop Reg §1.954-2(g)(4)(iii), controlling U.S. shareholders would be precluded from revoking a §1.954-2(g) election made on behalf of a CFC (including an initial election) until six years after the year in which the election was made. Additionally, the new proposals would provide that if a CFC's controlling U.S. 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not make a new §1.954-2(g) election on behalf of the CFC until six years after the year in which the previous election was revoked.

According to the IRS, this change to the revocation rules "would limit taxpayers from opportunistically making or revoking a §1.954-2(g) election." For example, this change would limit taxpayers' ability to selectively recognize certain foreign currency losses.

Other proposals contained in this NPRM include changes to 2017 proposed regs §1.988-7(c) through §1.988-7(e).

For example, new Proposed Reg §1.988-7(d) would provide that the election made pursuant to proposed §1.988-7(c) is subject to rules like those imposed on Code Sec. 475 elections. The election would be effective for the tax year for which it is made and all subsequent years. The new proposal would provide that a taxpayer may revoke the election only with the IRS' consent.

Generally, these proposed regulations would apply to tax years ending on or after the date final regulations are published in the Federal Register (the "finalization date").

Taxpayers can rely on these proposed regulations and the treatment of certain elections, or revocation of elections, made in earlier periods.

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The U.S. Treasury Department should scrap or revise significantly an anti-abuse rule for nonresident aliens who receive loans from foreign trusts, which was included in proposed regulations on how to report foreign trust transactions, the American Institute of Certified Public Accountants said in a letter published on July 15, 2024.

The AICPA said in its letter that the rule should be significantly revised in several ways if it cannot be eliminated entirely. The proposed rule would treat certain loans as distributions under IRC Section 643(i) that originate from foreign trusts and are granted to a nonresident alien who becomes a U.S. person within two years.

Section 643(I) Would Apply To The Outstanding Loan
Amount From The Date The Beneficiary Becomes A
U.S. Citizen Or Resident
"If The Loan Was Not A Qualified Obligation
As Of The Date That It Was Made"
Under The Proposed Anti-Abuse Rule.

Among the institute's recommendations were applying the rule only on a prospective basis, limiting the applicability of the rule to "only if the loan was made to an individual who was previously a resident alien for at least a three-year period, and if the loan was made within two years before the individual resumed his or her resident alien status."

Treasury issued these proposed regulations in May 8, 2024 which were designed to provide guidance on the requirements for individuals to report their transactions with foreign trusts to the Internal Revenue Service, including the receipt of large gifts.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

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www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

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The Internal Revenue Service is opening its compliance assurance process real-time audit program to privately held C corporations, including foreign-owned ones, for 2025, the agency announced on August 15, 2024 in IR-2024-211,

The Internal Revenue Service today announced the opening of the application period for the 2025 Compliance Assurance Process (CAP) program, which will run from Sept. 4 to Oct. 31, 2024. 

The IRS will inform applicants if they’re accepted into the program in February 2025.

Launched in 2005, CAP employs real-time issue resolution through transparent and cooperative interaction between taxpayers and the IRS to improve federal tax compliance by resolving issues prior to the filing of a tax return.

To be eligible to apply for CAP, applicants must:

• Have assets of $10 million or more,

• Be a U.S. publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q and 8-K or a privately held C-corporation including foreign-owned. Privately held applicants will be required to submit audited financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS) or another permissible method, as deemed appropriate by the IRS, specific to the taxpayer applying to the CAP program on an annual basis and unaudited financial statements on a quarterly basis.

• Not be under investigation by, or in litigation with, any government agency that would limit the IRS’s access to current tax records.

See highlights and updates for detailed information on revisions to the CAP program for 2025, including updates on Bridge Plus, an expansion of the applicant eligibility criteria, a new eligibility exception and a new form for international issues. General program information and the 2025 application details are available on the CAP webpage. 

Privately held C corporations that apply will have to furnish audited financial statements, and related-entity or parent-audited statements won't be acceptable, the IRS said.

The agency also said Thursday that new applicants for the 2025 program will have to submit the Form 14234-E cross border activities questionnaire with their application. Returning applicants are directed to file it 90 days after the end of the prior tax year and simultaneously with filing tax returns, the IRS said.

The IRS also said it will add a new exception to the closed/open year eligibility rule because of Inflation Reduction Act provisions. A tax year staying open solely because of an outstanding Inflation Reduction Act  issue won't be deemed an open-filed return on the first day of an applicant's CAP year for purposes of program eligibility standards for returns, the agency said Thursday. President Joe Biden signed the tax and climate act into law in 2022.

Want To Avoid a IRS Tax Problem?

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On April 23, 2004  we posted IRS Releases Digital Asset Draft Form 1099-DA where we discussed that the new 2025 Form 1099-DA is generally expected to be included on federal income tax returns by taxpayers who answer "yes" to the digital asset question that asks if they, at any time during the relevant tax year, received, sold, exchanged, or disposed of a digital asset or financial interest in a digital asset. 

Now in IR-2024-178 dated June 28, 2024 The U.S. Department of the Treasury and the Internal Revenue Service issued final regulations requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. These reporting requirements will help taxpayers to file accurate tax returns with respect to digital asset transactions, which are already subject to tax under current law.

They require brokers to report certain sale and exchange transactions that take place beginning in calendar year 2025 and will be reported on the soon-to-be released Form 1099-DA. The regulations implement reporting requirements by the Infrastructure Investment and Jobs Act, enacted in 2021.

The final regulations require gross proceeds reports for transactions taking place on or after January 1, 2025 and basis reporting by some brokers for transactions beginning January 1, 2026,

Treasury and the IRS has issued two notices which generally provide relief from failure to file and failure to furnish penalties for 2025 transactions if the broker makes the good-faith effort to file (Notice 2024-56) and furnish accurate Forms 1099-DA, Digital Asset Proceeds from Broker Transactions in a timely manner (Notice 2024-56).

The notices contain backup withholding relief for 2025 and 2026 transactions.

The final regs also omit a finalized Form 1099-DA, the information return that will be used for reporting digital asset transactions. A draft was recently released and there will be a 30-day comment period focused on improving the form.

Also according to Law360, the Internal Revenue Service released a revised draft form on August 9, 2024 for brokers to report their digital asset sales, which reflects the treatment of custodial industry participants in final regulations and the transitional relief for filers that fail to report the transactions.

Have an IRS Tax Problem?

    

Did You Omit Income From Digital Assets?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog