In 2010, the IRS published Final regs relating to broker reporting of stock. On Nov. 25, 2011, the IRS issued proposed regs that would integrate rules for broker reporting of options and debt instruments into the current final regs that explain how brokers must report stock transactions. However, the proposed regs also would make some changes affecting all securities subject to the reporting rules. For example, broker reporting of gross proceeds would be simplified.

The IRS has released on its website Form 8937, Report of Organizational Actions Affecting Basis of Securities, and its Instructions. The Instructions include details on who must file the form and how certain entities can otherwise satisfy their organizational action reporting obligations.

IRS has issued temporary and proposed regulations fleshing out the Code Sec. 6038D requirement for individuals to attach a statement to their income tax return to provide information on foreign financial assets in which they have an interest. The temporary regs are effective for tax years ending after Dec. 19, 2011, but taxpayers can apply them to earlier years. IRS has also recently released the final version of Form 8938 (Statement of Specified Foreign Financial Assets) and its Instructions, which individual taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Congress allowed numerous temporary provisions to expire at the end of 2011.� But note that Congress may retroactively reinstate some or all of these rules.� Below are some of the provisions that expired.

In a notice and accompanying news release, IRS reminded executors of the estates of married decedents dying after 2010 that they must file an estate tax return in order to pass along the unused estate and gift tax exclusion amount, available for the first time this year, to their surviving spouse. The first estate tax returns for estates eligible to make the portability election were due starting on Oct. 3, 2011 (i.e., nine months after a post-2010 date of death).

The IRS announced that taxpayers will have until Tuesday, April 17 to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do. Therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2011 tax returns.

In a Notice, IRS has requested comments on when and under what circumstances transfers by a trustee of all or a part of the principal of an irrevocable trust (Distributing Trust) to another irrevocable trust (Receiving Trust), sometimes called "decanting," that result in a change in the beneficial interests in the trust aren't subject to income, estate and gift (E&G), and/or generation-skipping transfer (GST) taxes. In such transfers, the interests of one or more of the beneficiaries may be changed or terminated, while another beneficiary who didn't previously have an interest in the Distributing Trust may receive an interest in the Receiving Trust.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate tax was to have been repealed for individuals dying in 2010, and the rules allowing a step-up in basis for property acquired from a decedent were to have been replaced with a modified carryover basis regime ( Code Sec. 1022).

On September 8, the IRS released Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011, and the accompanying instructions. The form and instructions reflect law changes made by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

In light of the Supreme Court's decision in Knight v. Com., the IRS has withdrawn previously issued proposed regs and, consistent with that decision, provided new guidance on which costs incurred by estates and non-grantor trusts are subject to Code Sec. 67(a)'s 2% floor for miscellaneous itemized deductions.

On June 22, 2011, the IRS issued Notice 2011-56. The Notice provides guidance on some technical issues relating to the basis of stock subject to broker reporting under § 6045, pending publication of superseding guidance. Notice 2011-56 contains interim guidance for cost basis reporting on these topics:

On June 21, 2011, the IRS released Notice 2011-55. The Notice suspends the information reporting requirements under two provisions of the Foreign Account Tax Compliance Act (FACTA), enacted on March 18, 2010 as part of the HIRE Act.

Section 6038D, effective for tax years beginning after March 18, 2010, requires an individual who holds an interest in a specified foreign financial asset to attach certain required information to his tax return if the aggregate value of all his foreign financial assets exceeds $50,000.

The Foreign Account Tax Compliance Act added a new chapter 4 to the Internal Revenue Code. Chapter 4 requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Foreign financial institutions (FFIs) that do not enter into an agreement with the IRS are subject to a 30% withholding tax on certain types of payments, including U.S. source interest, dividends, gross proceeds from the disposition of U.S. securities, and pass-thru payments.

On Feb. 24, 2011, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, issued a final rule on Foreign Bank Account Reports (FBARs). The rule addresses the scope of persons that are required to file FBARs. The rule specifies the types of accounts that are reportable, and provides relief for certain persons with signature or other authority over foreign financial accounts. The rule adopts provisions intended to prevent persons subject to the rule from avoiding their reporting requirement.

In the Fisher case, the Court of Claims held that a policyholder who received stock in a demutualized insurance company could take into account premiums he had paid before the demutualization to calculate his basis in the stock. The Court of Appeals upheld the Court of Claims' decision.

The Fisher decision was not a binding precedent. The service is litigating the same issue in another case in Arizona. Dorrance v. U.S., No. CV09-1284-PHX-ROS (D. Ariz. filed June 15, 2009).

When a domestic corporation or a qualified foreign corporation pays a dividend to an individual shareholder, the dividend is taxed at the reduced rates applicable to long term capital gains if the shareholder meets certain holding period requirements. Subject to certain exceptions, a "qualified foreign corporation" includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the U.S. that the Secretary determines is satisfactory for purposes of this rule and that includes an exchange of information program. IRC § 1(h)(11)(C).

On June 24, 2011, the Treasury issued final regulations on filing extensions for certain pass-through entities. Estates and trusts can apply for an automatic 5-month extension of time to file their income tax returns. This rule does not change the rule previously announced in temporary and proposed regulations.

The IRS has released a new form that tax-exempt organizations will use to request certain determinations about their tax-exempt status. In addition to foundation status issues, organizations will use Form 8940, Request for Miscellaneous Determination, to obtain advance approval of certain activities and exemption from Form 990 filing requirements.

In Notice 2011-38, the IRS extended to calendar years 2011 and 2012 a pilot program that authorized filers of certain information returns to truncate an individual payee's nine-digit identifying number on specified paper payee statements, if the filers met certain requirements. The Notice also modifies the pilot program by excluding one of the forms in the Form 1098 series.

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law.

The Tax Relief Act extends for two years the Bush-era tax cuts, provides significant estate tax relief, and includes a two-year AMT "patch." It also contains a plethora of other tax breaks for businesses and individuals, including 100% first-year write-offs of qualifying property placed in service after Sept. 8, 2010 and before Jan. 1, 2012, a social security tax cut of two percentage points for 2011 only for employees and self-employed individuals, and a host of extenders for businesses and individuals. Below are some selected highlights.

THREE EXTRA DAYS TO FILE AND PAY

Taxpayers, nationwide, will have until Monday, April 18, 2011, to file their 2010 returns and pay any taxes due. Taxpayers get the extra time because Emancipation Day, a holiday in the District of Columbia, is observed this year on Friday, April 15. By law, D.C. holidays impact tax deadlines in the same way that federal holidays do. The April 18 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2010 IRA contributions.

Caution: States may not follow the extended due date for filing or paying.

As we mentioned in the January edition of ONESOURCE Trust Tax Alert, Congress allowed the estate tax to expire at the end of 2009. For decedents dying in 2010, there is no estate tax, and there is a modified carryover basis for inherited property.

As of this writing, it appears unlikely that Congress will reinstate the estate tax retroactively for 2010 (if at all). Practitioners and fiduciaries should be prepared for the possibility that there will be no estate tax for at least most of 2010, and for the possibility that a modified carryover basis regime will apply.

Under current rules, most net long-term capital gain is taxed at a maximum rate of 15%. If the long-term capital gain would otherwise be taxed at a rate below 25% if it were ordinary income, then it is taxed at a zero percent rate. Qualified dividends are taxed to noncorporate shareholders at the same rates that apply to long-term capital gain.

On April 1, 2010, the IRS issued Notice 2010-32. The Notice provides that taxpayers will not be required to determine the portion of a bundled fiduciary fee that is subject to the 2-percent floor under § 67 for any taxable year beginning before January 1, 2010.

On March 18, 2010, the IRS issued Announcement no. 2010-19. The Announcement applies to trusts that met the requirements to be classified as a Type III supporting organization through the end of the 2008 tax year, but erroneously filed Form 990-PF and paid the excise tax on net investment income for the 2008 tax year.

Tax-exempt organizations that fail to satisfy annual filing requirements for three consecutive years automatically lose their tax-exempt status. If an organization loses its exemption, it must reapply to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

In March, the President signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The Acts require most residents of the United States to obtain health insurance. This mandate carries with it a host of new tax rules, such as a penalty for individuals who choose to remain uninsured, tax credits and other sweeteners for participating in new insurance coverage, and new penalties for larger employers that don't provide insurance, or that provide coverage deemed inadequate or unaffordable. Below are some selected highlights.

IRS Notice 2010-23  provides administrative relief to certain persons who may be required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), for calendar year 2009 and earlier years.

Background

To give Treasury time to develop comprehensive FBAR guidance, and to get public comments, Notice 2009-62 extended the FBAR filing deadline for (1) persons with no financial interest in a foreign financial account but with signature or other authority over that account, and (2) persons with a financial interest in, or signature authority over, a foreign financial account in which the assets are held in a commingled fund. Treasury has now published proposed FBAR regulations under 31 CFR Part 103, as well as proposed revisions that clarify the FBAR instructions.

In March the President signed into law the Hiring Incentives to Restore Employment Act of 2010 (the HIRE Act, P.L. 111-47). The HIRE Act includes provisions from the Foreign Account Tax Compliance Act of 2009 (FATCA), a comprehensive set of measures to reduce offshore noncompliance by giving IRS new administrative tools to detect, deter and discourage offshore tax abuses. An overview of these provisions follows.

The 2008 Emergency Economic Stabilization Act extended through Dec. 31, 2009 an exemption from NRA withholding for interest-related dividends and short-term capital gains from mutual funds. On Dec. 9, the House of Representatives passed H.R. 4213. That bill included a provision extending the exemption through Dec. 31, 2010. However, the Senate did not act on the bill by year-end. Therefore, the exemption expired on Dec. 31, 2009.

For tax years beginning after 2009, the $100,000 modified AGI limit on conversions of traditional IRAs to Roth IRAs is eliminated. Additionally, married taxpayers filing a separate return will be able to convert amounts in a traditional IRA into a Roth IRA (currently they are barred from doing so). (IRC § 408A(c)(3))

The IRS recently announced a pilot program allowing filers of information returns to truncate an individual's nine-digit identifying number on paper payee statements for calendar years 2009 and 2010. IRS Notice 2009-93.

On Dec. 18, 2009, the IRS published Notice 2010-4. The notice provides guidance on reporting for widely held fixed investment trusts (WHFITs) and widely held mortgage trusts (WHMTs). << Read More >>

On Dec. 16, 2009, the IRS issued proposed regulations on the broker basis reporting rules added by the 2008 Energy Improvement and Extension Act.

Private activity bonds are state and local bonds issued to provide financing for private purposes. Such bonds are exempt from federal income tax if they belong to one of seven categories of "qualified bonds" and meet certain other requirements. But the exemption doesn't apply for purposes of the alternative minimum tax (AMT). Tax-exempt interest on "specified private activity bonds," reduced by any deduction that would have been allowable if the interest were taxable, is a preference item that is included in alternative minimum taxable income (AMTI). This limits the marketability of these bonds and, therefore, forces state and local governments to issue these bonds at higher interest rates.

On October 9, the Federal Circuit Court of Appeals upheld, without opinion, the Court of Claims' decision in Fisher v. US. In that case, the Court of Claims held that a policyholder who received stock in a demutualized insurance company could take into account the premiums he had paid before the demutualization when calculating his basis in the stock. Consequently, the taxpayer recognized no gain when he later sold the stock. << Read More >>

IRC § 6045 requires reporting entities (sometimes referred to as broker) to report proceeds from the sale of securities on Form 1099-B. The 2008 Energy Improvement and Extension Act changed the deadline for mailing Forms 1099-B (also 1099-S, and 1099-MISC when reporting payments to attorneys or substitute payments by brokers in lieu of dividends or interest) to customers from Jan. 31 to Feb. 15. The Act also extended the deadline for mailing consolidated reporting statements, as defined in regulations.

In what many thought would never happen, the repeal of the Estate Tax is now law, at least until Congress gets around to undoing the repeal. This article examines the law as it exists today, the winners and losers if the law isn't changed, and the likelihood that some action will be taken soon.