Visiting the Committees

• Publication year: 2020

Visiting the Committees

Commentary and Updates by the Committees

CORPORATE AND PASS-THROUGH ENTITIES COMMITTEE

The Corporate and Pass-Through Entities Committee focuses on issues faced by corporate taxpayers and provides opportunities for practitioners and corporate tax counsel to maintain a level of expertise in the field of corporate tax law, expand their professional contacts, and serve the profession, the public and the legal system. Membership in the Committee offers practitioners information on developments with respect to corporate and business tax and a greater voice on developments in such legislation.

Committee Activities

Generally, the Committee holds monthly meetings via teleconference and interested members of the Tax Section are welcome to participate. The Committee is sponsoring a four-part webinar CLE/CPE series on various partnership tax topics. In addition, members and other interested parties are welcome to submit articles for Quick Points on Corporate and/or Pass-through topics of general interest to the members of the Taxation Section. For more information regarding upcoming meetings and events should contact the Committee Co-Chairs, Erin L. Fraser at efraser@fbm.com, or Cameron Hess at (916) 920-5286 or chess@wkblaw.com.

Quick Points

Taxing the 21st Century: OECD's Plan for the Digital Economy

The Organization for Economic Co-operation and Development ("OECD") has in recent years concentrated its efforts on fighting tax avoidance and evasion. On October 9, 2019, the OECD published a new proposal that, according to the OECD Secretary-General, is intended to "address the tax challenges arising from digitalization of the economy" (the "Plan"). According to the OECD, the challenges that the Plan aims to "fix" are the global tax rules that fail to capture the value consumers create for multinational digital companies. The Plan proposes to tax multinational corporations' profits wherever such corporations generate their profits and have significant "Consumer Facing Business" activities—whether or not the corporations have a physical presence in those countries. Effectively, the Plan creates a new nexus standard (largely based on sales and end users) that would radically modify the modern international tax system that has been in place for the last 100+ years.

The Plan is designed to give new taxing rights to the countries where users of highly-digitalized businesses are located, and to break from traditional physical presence rules. The Plan is in response to recent assertions that digital companies are not paying enough (or any) tax in countries where their revenue is generated. Under the new system, corporations that have sales or end users in countries with large consumer bases (China, India, etc.) could see increased taxes in those countries, and their business profits could be reallocated to higher-tax jurisdictions, rather than where the businesses are physically located.

The Plan is designed as a new treaty provision to be signed between member countries. For now, the Plan is just that-a plan, which lacks concrete details and is being utilized as a talking point for further discussion. Some significant questions remain: What types of businesses would fall under this plan? What revenue will be subject to the new tax system? The Plan does not define "Consumer Facing Businesses." While that term is purposefully vague, commentators have suggested that the main targets are companies such as search engines and social media platforms who currently escape many countries' domestic taxation systems even though they have significant users and revenue generation in those countries.

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While the Plan was recently introduced, and is light on material definitions, the OECD desires to finalize the Plan by the end of 2020, and the tax implications for the digital economy may be extremely significant.

—Spencer T. Higgins,
San Diego

ESTATE AND GIFT TAX COMMITTEE

The Estate and Gift Tax Committee is comprised of attorneys throughout the State of California who devote a significant portion of their practice to understanding the evolving areas of estate and gift tax planning, drafting, compliance, and controversy work. One of the primary functions of the Committee is to provide valuable, informative, high quality continuing education programs on behalf of the Taxation Section. Throughout the year, the Estate and Gift Tax Committee also hosts quarterly conference calls to organize committee activities.

Committee Activities

If you are interested in becoming a member, submitting a topic on which to speak or write, would like join the conference calls, or of if you are interested in joining the leadership, please contact the Estate and Gift Tax Committee Chair, Eric A. Baggett, at (619) 515-5645 or eric.baggett@bofa.com.

INCOME AND OTHER TAXES COMMITTEE

The Income and Other Taxes Committee provides an outlet for its members to actively participate in the Taxation Section with respect to issues relating primarily to federal income taxation. The Committee's mission is to: (i) promote dialogue and maintain the expertise of its members through the annual provision of continuing education with respect to recent developments on various income (and other) tax issues; and (ii) provide a networking forum for members to expand their professional contacts.

Committee Activities

The Committee is currently in the process of organizing the 2020 Annual Income Tax Seminar. This event was scheduled to take place on Friday, June 26, 2020, at the CLA Headquarters in Sacramento. However, due to the onset of COVID-19, the event will be rescheduled to a later date. The Committee is working on an article for the California Tax Lawyer and hosted a Webinar on April 23, 2020 providing an overview and in-depth discussion of the Final Regulations for Qualified Opportunity Funds.

Please contact the Committee Chair, Matthew Carlson, at mcarlson@boutinjones.com for information on joining the Income and Other Taxes Committee, participating in the 2020 Annual Income Tax Seminar, or participating in future Income and Other Taxes Committee submissions and projects. The Committee also holds monthly meetings by teleconference on an ad hoc basis, so please reach out to Matthew Carlson to confirm the date and time of the next Committee meeting if you are interested in participating.

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Quick Points

Tax Court Holds That IRS Failed to Satisfy Section 6751(B) in Conservation Easement Case

In Carter v. Commissioner, T.C. Memo. 2020-21, the Tax Court found that the IRS did not obtain timely supervisory approval for the proposed gross valuation misstatement penalties.

In Carter, the Tax Court disallowed a charitable contribution deduction for a conservation easement on the ground that the easement granted did not meet the perpetual restriction requirement because the restrictions in the easement would not prevent development of single-family homes.

However, the Court found for the taxpayers on the penalty issue. The IRS issued a revenue agent report ("RAR") to the taxpayers before obtaining "supervisory approval" as required by Internal Revenue Code section 6751(b). The IRS argued that the RAR did not constitute a formal communication of the penalties because it did not grant administrative appeal rights. However, the Tax Court rejected this argument and held that prior cases did not require an RAR to come with appeal rights in order to constitute a formal communication of an initial penalty determination within the meaning of section 6751(b). Carter represents yet another taxpayer-friendly opinion in the penalty context and demonstrates that there are additional nuances to penalty cases that may be litigated for the foreseeable future.

—Matthew D. Carlson
Sacramento

INTERNATIONAL TAX COMMITTEE

The International Tax Committee is an integral part of California's international tax practice, providing a unifying forum in which to address the tax considerations of individuals, trusts, and business enterprises, whose members and activities cross international borders. The Committee works with the AICPA foreign trust task force and international tax technical resource panel to liaise with the IRS for various projects, including comments for...