New IRS directive: plus other administrative and judicial actions.

• Author: Josephs, Stuart R.
• Position: FedTax

The June 2012 issue of Conforms CPA reported that the IRS large Business and International Division issued a directive March 15, 2012 (I.B & 1-4-0312-00-1) pi-mining to:

* Whether costs incurred to maintain, replace or improve tangible property must be capitalized; and

* Correlative issues involving disposition of tangible depreciable assets or structural components of buildings.

This directive further stated that for tax years beginning before 2012, examination should be discontinued and new- ones should not begin for these issues,

EB&. I-0+0313-001, issued March 22, replaces the 2012 directive, restate* the previous instructions for lax years beginning before 2012 and provides the following additional instructions;

If a taxpayer files Form 3115 regarding these issues on or after Dec, 27,2011 (the date temporary regulations were published) for a lax year not included in the "Option Period," the examiner should risk assess the Form 3115 and determine, in consultation with specified IRS Practice Groups, whether to examine that Form 3115.

The Option Period relates to tax yean beginning after 2011 and before die applicability dates provided in forthcoming final regulations, when taxpayers may choose to apply the temporary regulations.

Also, various steps are set forth to discontinue exam activity for these issue.

If a return is examined for a tax year beginning after 2011, but before 2014, the examiner should determine if the taxpayer changed its accounting method concerning these issues, with or without filing Form 3115.

If yes, a risk assessment should be performed regarding this change.

If no, the Option Period is still open and the issue should not be examined.

For examinations of tax years beginning after 2013, the regulations in effect should be applied and normal exam procedures should be followed.

Completed Versus Incomplete Gifts

IRS Chief Counsel Memorandum 201208026 held that donors made completed gifts of term interests in a trust when they transferred property to a trust benefiting the donors' children, even though foe donors retained testamentary limited powers of appointment over the trust.

This memorandum was a change in the IRS' position since it previously issued private letter rulings (PLRs) to the contrary Consequently; many taxpayers may now owe gift tax on transfers they thought were nontaxable.

However, PLR 201310002 considered foe treatment of an irrevocable trust from which distributions may be made pursuant to foe...