Research Tax Assignment 2

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Texas A&M University, Texarkana *

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Apr 3, 2024

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Lydia Oviedo ACCT324 Research Tax Assignment 2 1. Define and use your best efforts to distinguish between: a. Revenue Ruling is an explanation that the IRS provided to us regarding internal revenue laws, taxes, and regulations from the I.R.B (Internal Revenue Bulletin). It helps you to understand how tax is applied in any case. This information is only released to IRS officials and taxpayers. b. Letter Ruling is a written response from the IRS to a taxpayer regarding guidance in any specific request on how the laws apply to a specific situation. c. Revenue Procedure is an official statement issued in the Internal Revenue Bulletin and affects either the rights or duties of taxpayers. Information is released to the public for their pure knowledge because it does not necessarily affect them directly. d. Treasury Decision is an official document issued by the Treasury Department’s Office of Tax Policy. This document is released when tax laws change, or even court decisions. In general, they are very useful when it comes to communicating important tax-related information to the public. e. Technical Advice Memorandum is a written guidance issued by the IRS in response to any specific situation that is not able to fit in what is already established, and is only issued for special “cases”. To clarify any presented issue.

2. Briefly describe the facts, issues, and Internal Revenue Service's holding for each of the following Revenue Rulings. Discuss whether each is still authoritative. a. Rev. Rul. 2002-80 Issue: - Amounts an employer pays to an employee as “advance reimbursements” or “loans” are excluded from gross income under § 105(b) and from employment taxes under §§ 3401(a), 3121(a), and 3306(b) of the Internal Revenue Code. Facts: - Employer reduces employees' salaries to pay for group health insurance premiums. They also make “advance reimbursements” to offset the reduction, so the employees’ take-home pay remains roughly the same. When employees submit claims for uninsured medical expenses, they exclude these amounts from their gross income under § 105(b) and do not withhold income tax or treat them as wages. Any excess advance reimbursements are sometimes considered forgiven and treated as additional taxable compensation. - Another employer similarly reduces salaries to cover health insurance premiums but does so through "loans" to employees. These loans only become due when employees submit claims for uninsured medical expenses. If a loan is repaid with such expenses, it's excluded from the employee's gross income under § 105(b), and employment taxes aren't applied. If an employee doesn't have enough medical expenses to cover the loans, the employer forgives the outstanding loan amounts.

IRS Holding: - The exclusion from gross income under § 105(b) does not apply to amounts that an employer pays to an employee as "advance reimbursements" or "loans," whether or not the employee incurs uninsured medical expenses during the year. While in the other hand, with the other employer, the amounts paid to the employee do not constitute loans. Accordingly, all of the "advance reimbursements" or "loans" are included in the employee's gross income under § 61 and are subject to employment taxes under §§ 3401(a), 3121(a), and 3306(b). Authoritative? Yes. b. Rev. Rul. 2001-31 Issue: - W hether certain captive insurance transactions, where a taxpayer seeks insurance coverage for itself and its operating subsidiaries through a wholly owned captive insurance subsidiary, should be considered as insurance for federal income tax purposes. Facts: - Three situations were presented where a taxpayer attempted to obtain insurance coverage for itself and its operating subsidiaries through a wholly owned captive insurance subsidiary. The ruling in 1977 explained that the taxpayer, its non- insurance subsidiaries, and its captive insurance subsidiary together constituted one "economic family" for the purpose of determining whether there was sufficient risk shifting and risk distribution to qualify as insurance for federal income tax purposes.

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If the risk was retained within this economic family, the premiums paid by the taxpayer and its non-insurance subsidiaries to the captive insurer were not deductible. IRS Holding: - The IRS announces in this ruling that it will no longer rely on the "economic family" theory when evaluating captive insurance transactions. Authoritative? Yes. c. Rev. Rul. 98-13 Issue: - The issue addressed in Rev. Rul. 98-13 is the determination of bond factor amounts for calculating the amount of bond considered satisfactory under section 42(j)(6) of the Internal Revenue Code, specifically for dispositions occurring during the early months of 1998. Facts: - In Rev. Rul. 90-60, the IRS provided guidance on the methodology used by the Treasury Department for computing bond factor amounts. These bond factor amounts are used in determining the amount of bond considered satisfactory by the Secretary under section 42(j)(6) for low-income housing tax credit purposes. It was announced that the Secretary would publish a table of "bond factor" amounts in the Internal Revenue Bulletin for dispositions occurring during each calendar month. Rev. Rul. 98-13 provides Table 1, which includes bond factor amounts expressed as a percentage of total credits for dispositions occurring during the months of January through March 1998. IRS Holding:

- The ruling provides a table of bond factor amounts for dispositions occurring during the specified months of 1998. These bond factor amounts are expressed as a percentage of the total credits and vary depending on the year the building was placed in service or the succeeding calendar year, as well as the month of disposition. The table allows taxpayers to calculate the amount of bond considered satisfactory for their low-income housing projects based on the provided percentages. 3. What is the subject of each of the following Letter Rulings? a. 201009012 is a request for a ruling regarding the tax treatment of required minimum distributions from a traditional individual retirement account (IRA) held by a participant who is a resident of Canada. b. 201247022: The sender requests a waiver of 60-days rollover necessities confined in section l408(d)(3) of Internal Revenue Code. 4. Briefly describe the subject matter of each of the following Treasury Decisions. a. 8346: it talks about the treatment of real estate property in the event of exchanges and direct swaps. b. 8780: it is related to “Code Section 7623(a)” which generally authorizes the IRS to provide a reward for information relating to violations of internal revenue laws. c. 8915: it is related to amendments in the temporary regulations under section 444 of the IRC. This decision was related to S-corporation shareholders. Under this decision, it was made clear that any S-corporation, any electing small business trust and a trust described in section 401(a) or section 501(3)(c) is not a deferral entity for the purpose of section 1.444-2T.

5. Briefly describe the subject matter and current status of each of the following Revenue Procedures. a. Rev. Proc. 98-11: Is the specific criteria, requirements, and procedures for organizations seeking formal IRS determinations about their foundation status, which is a critical aspect of tax-exempt status and tax treatment under U.S. tax law. Still in effect. b. Rev. Proc. 2013-31: Focuses on the implementation and administration of Section 871(m) with the goal of ensuring that certain financial instruments, including equity derivatives, are properly accounted for and taxed when held by foreign investors. Still in effect. c. Rev. Proc. 2005-78: Provides guidelines for the use of standard mileage rates for calculating deductible expenses associated with the use of a vehicle. No longer in effect.

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REFERENCES Revenue Ruling . Answerconnect. (n.d.). https://answerconnect-cch-com.tamut.idm.oclc.org/federal/arp1209013e2c83dc42b7/cases- and-guidance/current/rulings/single/rrk010836cd467b691000ae5a001b78be8c780f8/ revenue-ruling-2002-80-rev-rul-2002-80-i-r-b-2002-49-i-r-b-2002-925-dec-8-2002? searchId=2087326301&disableHighlight=false IRS scraps “economic family” challenge to captive insurance transactions. IRS Scraps “Economic Family” Challenge To Captive Insurance Transactions. | Tax Notes. (n.d.). https://www.taxnotes.com/research/federal/irs-guidance/revenue-rulings/irs-scraps- %27economic-family%27-challenge-to-captive-insurance-transactions/dl01? highlight=Rev.+Rul.+2001-31 IRS-drop . Internal Revenue Service. (n.d.). https://www.irs.gov/downloads/irs-drop Part I. Rulings and decisions under the Internal Revenue Code of 1986. (n.d.). https://www.unclefed.com/Tax-Bulls/2001/rr01-31.pdf