Guidance on Elective Exclusion From Code Sec. 956 Obligation Definition, Determination of Readily Marketable Securities, Extended (Notice 2010-12)

The IRS has further extended the application of the regulations described in Notice 2008-91, 2008-2 CB 1001 regarding the elective exclusion of certain obligations held by controlled foreign corporations (CFCs) from the definition of the term "obligation" for purposes of Code Sec. 956 (Notice 2010-12). Thus, these regulations will apply to the tax year of a CFC that immediately follows the last tax year of the CFC to which the regulations described in Notice 2008-91 could apply without regard to Notice 2010-12. Such regulations, however, will not apply to a tax year of a CFC beginning on or after January 1, 2011, and the IRS does not anticipate extending the application of these regulations to any additional periods. The IRS has also extended the application of Rev. Proc. 2008-26, 2008-1 CB 1014 to any day during calendar year 2010, for which it is relevant whether securities are readily marketable for purposes of Code Sec. 956(c)(2)(J) (in addition to any day during calendar years 2007, 2008 and 2009).

In Notice 2008-91, the IRS announced that it intends to issue regulations under Code Sec. 956(e) that will allow a CFC to choose to exclude from the definition of the term "obligation" an obligation held by the CFC that would constitute an investment in U.S. property, provided the obligation is collected within 60 days from the time it is incurred. This exclusion will not apply, however, if the CFC holds for 180 or more calendar days during its tax year obligations that, without regard to the 60 day rule, would constitute an investment in U.S. property. Notice 2008-91 provides that the elective exclusion will apply for the first two tax years of a CFC ending after October 3, 2008. It will not, however, apply to tax years of a CFC beginning after December 31, 2009. The IRS subsequently issued Notice 2009-10, 2009-1 CB 419 to provide that the regulations described in Notice 2008-91 will also apply to the third consecutive tax year of a CFC, if any, that ends after October 3, 2008, and on or before December 31, 2009.

Rev. Proc. 2008-26 generally applies to determine whether securities are "readily marketable" for purposes of Code Sec. 956(c)(2)(J) for any day during calendar years 2007 or 2008, for which it is relevant whether securities are readily marketable for purposes of that provision. Notice 2009-10 subsequently extended that period to include any such day during calendar year 2009.

Notice 2010-12, 2010FED ¶46,220

Other References:

Code Sec. 956

CCH Reference - 2009FED ¶28,576.023

CCH Reference - 2009FED ¶28,576.35

Tax Research Consultant

CCH Reference - TRC INTLOUT: 9,256.15

London International Financial Futures and Options Exchange Recognized as Qualified Board or Exchange (Rev. Rul. 2010-3)

The London International Financial Futures and Options Exchange (LIFFE), a regulated exchange of the United Kingdom, has been recognized by the IRS as a qualified board or exchange within the meaning of Code Sec. 1256(g)(7)(C). A taxpayer may change to the Code Sec. 1256 mark-to-market accounting method for the first tax year during which the taxpayer holds LIFFE contract that was entered into on or after January 1, 2010. Although the change in treatment of LIFFE contracts is a change in method of accounting, taxpayers do not need to file Form 3115, Application for Change in Accounting Method, to make this change. The change is made on a cut-off basis and no Code Sec. 481(a) adjustment is required.

Rev. Rul. 2010-3, 2010FED ¶46,221

Other References:

Code Sec. 1256

CCH Reference - 2009FED ¶31,107.021

CCH Reference - 2009FED ¶31,107.70

Tax Research Consultant

CCH Reference - TRC SALES: 48,100

Wisconsin --Corporate Income Tax: Rules on Apportionment and Nexus Amended

The Wisconsin Department of Revenue has adopted an emergency rule order that amends a number of corporation franchise and income tax rules relating to apportionment and nexus. In general, the order amends the rules to explain how they apply to corporations that are required to use combined reporting.

In addition, the order does the following:

-- makes updates regarding the sales factor to reflect changes enacted by Act 2 and Act 28, Laws 2009, for taxable years beginning on or after January 1, 2009 (e.g., throwback sales are included in the numerator at their full amount, rather than 50%);

-- provides rules interpreting various sections relating to sourcing for intangibles for taxable years beginning on or after January 1, 2009;

-- amends the definition of "financial institution" to include credit card banks and investment subsidiaries of banks;

-- for interstate financial institutions and interstate broker-dealers, investment advisers, investment companies, and underwriters, provides that Rule 2.49(4)(zs) and Rule 2.495(4)(h) do not apply to taxable years beginning on or after January 1, 2009 (i.e., throwback sales are not included in the numerator except for sales of tangible personal property);

-- for interstate telecommunications companies, provides that for taxable years beginning on or after January 1, 2009, the sales factor means the sales factor under Sec. 71.25(9), as in effect for the current taxable year (i.e., the sourcing of sales is based on where the benefit of the service is received);

-- specifies how various types of telecommunications services would be sourced under Sec. 71.25(9);

-- with respect to nexus, defines "loans" for purposes of applying Sec. 71.22(1r);

-- clarifies that nexus for part of a taxable year is recognized as nexus for the entire taxable year; and

-- provides that the same nexus standards apply to the recycling surcharge as apply to the corporation franchise or income tax.

Emergency Rule Order, Wisconsin Department of Revenue, effective December 31, 2009