IRS Releases Guidance on Information-Reporting Requirements Applicable to Widely Held Fixed Investment Trusts (Notice 2010-4)

The IRS has issued guidance regarding the reporting requirements of widely held fixed investment trusts (WHFITs). The new guidance provides interim rules on transition payments for trustees and "middlemen" with respect to WHFITs and trust interest holders (TIHs) and also limited penalty relief for trustees and middlemen. A middleman for this purpose is a person who hold interests in a WHFIT, but is not the ultimate beneficial owner of such interest. The guidance also provides rules for: inclusion of summary totals of WHFIT interest, dividend and miscellaneous income on Form 1099; the format of the written tax information statement required to be provided to TIHs; and the obligations of trustees and middlemen for information reporting with respect to certain non-mortgage WHFITs (NMWHFITs).

Reg. §1.671-5 contains the WHFIT reporting rules. The IRS had previously informed trustees and middlemen of WHFITs in Notice 2008-77, IRB 2008-40, 814, that it would not assess penalties as a result of failure to comply with WHFIT reporting rules with respect to calendar year 2008. In the new guidance, the IRS states that trustees and middlemen must comply with the Reg. §1.671-5 rules, except as provided in the new guidance.

Under the rules, the trustee or middleman of the WHFIT must report income paid to the beneficial owner as of the record date, rather than the payment date, as had often been the previous practice. To avoid confusion, a trustee or middleman who transitions to the new rules must provide the TIH with a statement that it is transitioning from reporting based on payment dates to reporting based on record dates and that the record date was in the previous calendar year, even though the payment date is in the current year, and the TIH must include the relevant payment as a Code Sec. 481(a) adjustment. Because the IRS recognizes that the trustees and middlemen may not have time to modify their reporting systems to report payments that span the 2008 and 2009 calendar years, it will not sanction them for 2009 for a failure to comply with Reg. §1.671-5(d), (e), and (g)(2).

A change in recognizing trust income in the year of the payment date to the year of the record date is a change in accounting method under Code Sec. 446(e), which would normally require IRS approval. In the guidance, the IRS gives consent to all cash method TIHs to make this change.

The new guidance also sets out procedures for information reporting with respect to WHFIT income. Middlemen and trustees may report such information on Form 1099-INT, Form 1099-DIV, or Form 1099-MISC, as appropriate, with a summary total included on Form 1099. Information may be furnished to TIHs via electronic and composite statements and may include summary totals, provided such statement provides enough information to the TIH to enable it to properly report its income.

Finally, the IRS determined that a trustee or middleman may satisfy its reporting requirements under Reg. §1.671-5(e) by providing a TIH of a royalty or commodity trust (two types of NMWFITs) with the address of a website where information can be found sufficient to meet the requirements of that regulation, if the middleman or trustee also provides the TIH with the option of receiving a written statement containing such information.

2010FED ¶46,205

Other References:

Code Sec. 671

CCH Reference - 2009FED ¶24,686.0525

CCH Reference - 2009FED ¶24,686.86

Tax Research Consultant

CCH Reference - TRC ESTTRUST: 36,300

Interim Rule Doubles Time Limit for Submitting Authorizations to Disclose Return Information (Notice 2010-8)

The IRS has released interim guidance that extends the period for submitting taxpayer authorizations permitting disclosure of return information under Code Sec. 6103(c) to the IRS or an agent or contractor of the IRS. The interim rules, which will apply until the regulations under Code Sec. 6103(c) are amended, extend the period within which a signed and dated authorization must be received by the IRS from 60 to 120 days. The 60-day limit has proven problematic because some of the institutions assisting taxpayers have had difficulty obtaining and submitting the written authorizations within that time period. The interim rules apply to all such authorizations executed on or after the date that is 60 days prior to the publication of this guidance in the Internal Revenue Bulletin, which will be on January 19, 2010.

2010FED ¶46,206

Other References:

Code Sec. 6103

CCH Reference - 2009FED ¶36,894.72

Tax Research Consultant

CCH Reference - TRC IRS: 9,104

Contribution, Benefit Base for 2010 Announced (Notice 2009-80)

The Social Security Administration has announced that the contribution and benefit base for 2010 remuneration and self-employment income is $106,800. The "old law" contribution and benefit base is $79,200. The "old law" base is used by the Railroad Retirement program to determine certain tax liabilities and tier II benefits, by the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under ERISA, and by the Social Security Administration to determine a year of coverage in computing certain benefits. Also, the domestic employee coverage threshold amount for 2010 has been determined to be $1,700.

Notice 2009-80, 2010FED ¶46,209

Other References:

Code Sec. 408

CCH Reference - 2009FED ¶113

CCH Reference - 2009FED ¶114

CCH Reference - 2009FED ¶780.07

CCH Reference - 2009FED ¶18,922.0249

Code Sec. 1401

CCH Reference - 2009FED ¶32,543.01

CCH Reference - 2009FED ¶32,543.07

CCH Reference - 2009FED ¶32,543.26

Code Sec. 1402

CCH Reference - 2009FED ¶32,580.01

Code Sec. 3401

CCH Reference - 2009FED ¶33,506.024

CCH Reference - 2009FED ¶33,506.054

Code Sec. 3510

CCH Reference - 2009FED ¶33,828.01

CCH Reference - 2009FED ¶33,828.30

Code Sec. 6017

CCH Reference - 2009FED ¶35,203.01

Code Sec. 6041

CCH Reference - 2009FED ¶35,836.20

Tax Research Consultant

CCH Reference - TRC INDIV: 63,052

CCH Reference - TRC COMPEN: 27,056

CCH Reference - TRC PAYROLL: 3,106

CCH Reference - TRC PAYROLL: 3,180

CCH Reference - TRC PAYROLL: 3,358

CCH Reference - TRC PAYROLL: 9,052

CCH Reference - TRC PAYROLL: 9,158

CCH Reference - TRC PAYROLL: 9,204

Wisconsin --Corporate, Personal Income Taxes: Voluntary Disclosure Program for Offshore Accounts Discussed

The Wisconsin Department of Revenue has issued a reminder regarding the personal income and corporation franchise and income tax voluntary disclosure program for offshore accounts. The purpose of the program is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters. Thus, the voluntary disclosure process should not be used by taxpayers who reported and paid tax on all taxable income but did not file a Report of Foreign Bank and Financial Accounts (FBAR). FBARs are not required to be filed with the Wisconsin Department of Revenue.

Transactions involving foreign financial accounts may be considered reportable transactions by the IRS. Wisconsin follows the federal rules regarding what is considered to be a reportable transaction. If holding a foreign bank account is not considered to be a reportable transaction for federal tax purposes, then it would not be a reportable transaction for Wisconsin tax purposes. If a taxpayer is required to file a federal Form 8886 with the Internal Revenue Service (IRS), then the taxpayer is also required to file the form with the Wisconsin Department of Revenue.

Taxpayers who wish to participate in Wisconsin's voluntary disclosure program to report previously untaxed income must file Form WI-VCP by January 15, 2010.

Taxpayers who participate must also file amended or original Wisconsin income or franchise tax returns, for the years 2003 through 2008, to report previously unreported income from foreign accounts within 90 days of a final determination by the IRS regarding the foreign income. A copy of Form WI-VCP (which was previously filed with the department by the January 15, 2010 deadline) must be attached to the amended and/or original Wisconsin returns. In addition, taxpayers must attach complete copies of all amended or original tax returns filed with the IRS, including copies of all paperwork provided to the IRS as a result of the disclosure. Taxpayers must provide an explanation for any differences between the Wisconsin and federal returns regarding the amount of unreported or underreported income or incorrectly claimed deductions or credits related to the foreign accounts.

Taxpayers should use Form 1X to amend individual income tax returns. For corporation franchise or income tax returns (Form 4 or Form 5), fiduciary income tax returns (Form 2), and partnership returns (Form 3), the appropriate box on the form should be checked identifying the return as an amended return.

The reminder notes that Wisconsin residents and other entities with a Wisconsin filing requirement who do not voluntarily notify the department by January 15, 2010, of previously unreported income from foreign bank accounts for the years 2003 through 2008 can expect to be contacted by the department.

The text of the reminder is available at http://www.dor.state.wi.us/taxpro/news/091218.html.

News for Tax Practitioners, Wisconsin Department of Revenue, December 18, 2009