Lately on the Hill
Election Day & the Lame-Duck Session
It’s election day and voters are deciding who will lead the nation through a consequential tax policy year in 2025. Whether results turn out a Republican or Democratic sweep, or government power remains divided, will greatly impact our tax legislative expectations.
Once the dust settles on the election’s outcome, the Washington National Tax Office of Forvis Mazars will release our perspectives on what the results may indicate for possible tax legislation through the lame-duck session and into 2025.
The Senate-stalled Tax Relief for American Families and Workers Act likely will not resurrect after Congress returns to session beginning November 12; however, some of its provisions may see the light of day. A recent announcement by the U.S. Department of the Treasury to begin negotiations on Taiwan tax relief and the recent natural disasters in the Southeast have stirred legislators to separate these bipartisan issues from the broader act. Other items due up during this end-of-year session include the annual National Defense Authorization Act and the continued extension of the 2018 Farm Bill, both providing opportunities to attach tax legislation. The session will be punctuated with fiscal year 2025 appropriations—possibly punted into next year.
The Judicial Report
Tax Court Includes Improper Excess Loss Deductions in Partner’s Outside Basis Calculation. Surk LLC v. Commissioner, T.C., No. 634-22, October 29, 2024.
In 2017, Surk, LLC deducted losses from a lower-tier partnership against its outside basis in the partnership. The IRS had determined Surk did not have sufficient outside basis to deduct the 2017 losses after adjusting the outside basis for improper excess loss deductions taken in 2014 and 2015. The agency did not disallow the 2014 and 2015 losses, which are closed years under the statute of limitations, but required Surk to reduce its outside basis in 2017 to account for losses that should have been disallowed but were deducted in the earlier years. The U.S. Tax Court agreed with the IRS’ adjustment.
The ruling centers on Internal Revenue Code (IRC) Section 704(d), which disallows losses in excess of a partner’s adjusted basis in a partnership. Losses in excess of the partner’s outside basis in the partnership may be carried forward and deducted once outside basis is sufficient. IRC §705(a) requires a decrease to a partner’s outside basis in a partnership for losses of the partnership. The court relied on the “plain wording” of the section in its ruling, deeming the commissioner’s calculation “consistent” with §705(a).
Surk argued that the IRS could not use its 2017 adjustment notice to adjust outside basis for excess losses deducted in 2014 and 2015, which are closed under the statute of limitations. The court disagreed. By deducting the losses in 2014 and 2015, Surk was therefore “allowed losses” and would decrease outside basis under §705(a), which requires a decrease for all losses of the partnership “for the taxable year and prior taxable years.”
The court concluded, “Surk now seeks to disregard its own reporting to claim future tax benefits. If Surk were not required to decrease its outside basis by the previously allowed excess losses, its outside basis would be overstated and would permit loss deductions in excess of Surk’s investment.”
CTA Injunction Relief Denied by Another District Court. Community Associations Institute v. Yellen, No. 1:24-cv-01597.
The U.S. District Court for the Eastern District of Virginia denied a motion to prevent enforcement of the Corporate Transparency Act (CTA) on the Community Associations Institute (CAI). Specifically, the motion for preliminary injunction sought relief from the beneficial owner reporting requirement. The CAI argued that the organization is entitled to relief under the exception for nonprofit organizations and that such requirement is in violation of the Administrative Procedure Act and is unconstitutional—exceeding Congress’ authority and an infringement of the First and Fourth Amendments.
The court ruled that CAI was unlikely to succeed in its claims, reasoning that community associations fall under §528(a)—outside of §501(c), which Congress specifically described under the exception. The court also disagreed that the CTA requirements are unconstitutional, and that CAI could not demonstrate irreparable harm is likely, as required to obtain a preliminary injunction.
From the Treasury & IRS
Treasury Takes the Initiative on Taiwan Tax Relief
In an October 29 press release, The Treasury announced negotiations with Taiwan will commence shortly to address double taxation issues. Currently, there is no tax treaty between the economic partners as the two do not share formal diplomatic ties. The Treasury intends that any agreement would ultimately be approved and implemented by enactment to the IRC.
The U.S. has been working to strengthen bilateral investments in the Taiwanese semiconductor industry, spearheaded by the CHIPS and Science Act of 2022, which provided funding and tax credits to incentivize domestic research and manufacturing related to semiconductors.
Congress has proposed bills to address the burdensome double-tax regime, including the United States-Taiwan Expedited Double-Tax Relief Act included in the Tax Relief for American Families and Workers Act of 2024, but has been unable to pass the legislation due to other partisan issues. Both parties generally support Taiwan tax relief.
IRS Releases Internal Training Resources on FDII & Business Aircraft Audits
The IRS has provided a slide deck concerning §250 deductions for foreign-derived intangible income (FDII). The 20-slide training includes concept explanations and an example.
IRS internal training materials have been released on business aircraft audits.1 Requesting flight logs is noted as “a critical first step.” Examination teams also are instructed to make determinations on the qualified business use of aircraft by obtaining the destination, purpose, and a passenger manifest for each flight as required under §274(d).
Released Guidance
Final regulations (T.D. 10011) have been released regarding the sale of a taxpayer’s property that the IRS has seized by levy. According to the IRS, the regulations will allow the IRS to better maximize sale proceeds for the taxpayer’s and the public fisc’s benefit.
Notice 2024-78 extends temporary relief to report U.S. taxpayer identification numbers for preexisting accounts by certain foreign financial institutions as originally provided in Notice 2023-11. The relief extends to calendar years 2025, 2026, and 2027.
Notice 2024-80 provides the 2025 annual benefit and contribution limits for qualified retirement plans and deferred compensation plans after adjustments for cost-of-living increases.
IR-2024-282 announces relief for individuals and businesses affected by flooding that began on August 5, 2024, which includes the city and borough of Juneau, Alaska. These taxpayers have until May 1, 2025 to file tax returns and make tax payments.
IR-2024-284 announces Jeffrey Erickson as associate chief counsel for the newly formed Passthroughs, Trusts, and Estates office. According to the announcement, “Erickson will coordinate and direct the activities of the office and oversee legal advisory services that support the uniform interpretation, application, enforcement and litigation of tax laws involving partnerships, S corporations, trusts and estates.” Holly Porter will take on the associate chief counsel role for the Energy, Credits, and Excise tax office.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1 “Corporate jet owners feel IRS audit pressure,” bloomberglaw.com, October 18, 2024.