Visiting the Committees

• Publication year: 2018

Visiting the Committees

Commentary and Updates by the Committees

COMPENSATION AND BENEFITS COMMITTEE

The Compensation and Benefits Committee provides a forum for members of the Taxation Section to learn and discuss issues relating to executive compensation, tax-qualified retirement plans, and health and welfare benefit arrangements. Membership in the Committee is open to employee benefit practitioners and Taxation Section members, and the participation of members of the Labor and Employment Law Section is encouraged. The Committee strives to include in discussions, high-level members of the Internal Revenue Service, U.S. Department of Labor Employee Benefit Security Administration, and California Franchise Tax Board.

Committee Activities

The Compensation and Benefits Committee schedules quarterly conference calls for all members interested in the topics that affect compensation and benefits. Members interested in participating, providing comments, or for more information regarding upcoming meetings and events should contact the Committee Chair, Colleen Hart, at chart@proskauer.com.

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

Normally, the Committee holds quarterly meetings via teleconference and interested members of the Tax Section are welcome to participate. 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, Aaron Johnson at (916) 441-2430, or ajohnson@wilkefleury.com or Cameron Hess at (916) 920-5286 or chess@wkblaw.com.

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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.

If you are interested in becoming a member or submitting a topic to speak or write on, please contact the Estate and Gift Tax Committee Chair, Abby Feinman, at (310) 788-4722, abby.feinman@kattenlaw.com, or Vice Chair, Alison Merino, at (408) 293-3616 or amerino@rpllawfirm.com.

Committee Activities

The Committee holds meetings at least quarterly via teleconference. We also welcome any member or other interested party who would like to write on a topic-to submit a brief article for Quick Points. This article can be any estate and gift topic of general interest to the members of the Taxation Section. Also, if you are interested in speaking at an event, or have a topic that you believe would be of interest to the members, we welcome input.

Quick Points

New Centralized Partnership Audit Regime Goes into Effect

Effective January 1, 2018, the new Centralized Partnership Audit Regime ("CPAR") (IRC §§ 6221—6241) went into force. CPAR rules affect any partnership or limited liability company required to file federal income tax returns under Internal Revenue Code § 6031(a), and replace the audit rules enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). There are three major procedural changes:

1. Adjustments and collections are now made at the partnership level, not partner level;
2. All deficiencies are subject to the highest rate of tax; and
3. "Partnership Representative" replaces the "Tax Matters Parnter" as the individual with authority to bind the partnership and its partners with IRS.

CPAR rules enable IRS to collect more tax with fewer resources. This may increase the number of partnership audits in tax years 2018 and beyond. Some tax partnerships may opt out of these rules by annually making an election on the partnership's federal income tax return.

CPAR rules necessitate revisiting all existing and new partnership and limited liability company agreements. Some CPAR changes and suggested agreement modifications are as follows:

• Tax is collected from the partnership in the year of audit, regardless of who the partners were in the reviewed tax year. Thus, current partners will suffer the burden of payment even if they were not partners in the reviewed tax year. Potential relief options are:

1. Electing out of CPAR rules, where eligible;
2. Restricting transfers to persons who would disqualify the partnership from electing out of CPAR rules;
3. Mandating the "push out" of any partnership level adjustments to partners;
4. Mandating that the partnership and partners file amended income tax returns for affected tax years;
5. Requiring transferors to indemnify the partnership for tax assessments attributable to years in which the transferor was a partner; and
6. Requiring adjustments to capital accounts resulting from assessments in a current year, attributable to prior years.

The operating agreement should appoint a "Partnership Representative" and potentially successors to avoid having the IRS fill any vacancy. Practitioners should also consider:

1. Designating the method for removing/ replacing the Partnership Representative;
2. Addressing potential conflicts of interest; and
3. Imposing fiduciary duties on the Partnership Representative, such as the duty to keep partners informed and requiring partnership votes before binding the partnership with IRS.

This is a brief snapshot of CPAR rules. Advisors should familiarize themselves with CPAR rules to properly advise clients.

— Michael P. Donohoe, Modesto

— Alison B. Arnold, San Jose

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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 Income and Other Taxes Committee has been busy planning the 2018 Annual Income Tax Seminar. The 2018 Annual Income Tax Seminar was held on Friday, June 22, 2018 in two locations: Golden Gate University in San Francisco and Chapman University in Orange.

We would also like to thank our Committee members for their valuable topic and speaker suggestions for the 2018 Annual Income Tax Seminar and upcoming webinars. Please contact the Committee Chair, Veronica Long, at veronica long@ftb.ca.gov for further information on joining the Committee and upcoming events.

Quick Points

Offshore Voluntary Disclosure Program to End on September 28, 2018.

On March 13, 2018, the Internal Revenue Service ("IRS") announced that it will close the 2014 Offshore Voluntary Disclosure Program ("OVDP") on September 28, 2018 (IR-2018-52). By making the announcement approximately six months ahead of its scheduled closing, the IRS hopes to encourage taxpayers to take advantage of the remaining time left on the program to disclose foreign assets and become compliant with U.S. tax laws by September 28, 2018.

Designed for U.S. taxpayers exposed to potential criminal and civil liabilities for a failure to disclose and pay taxes on offshore assets, under OVDP a taxpayer typically pays a flat 27.5% "offshore penalty" (50% in certain situations where the taxpayer would have been put on notice of an audit) on the highest aggregate value of the taxpayer's undisclosed offshore assets, in addition to all applicable taxes and interest, 20% accuracy-related penalties on the full amount of tax underpayment, and any failure-to-file and failure-to-pay penalties as applicable.

According to the IRS, OVDP was always meant to be transient in nature and to close at an appropriate time. The advances in third-party reporting coupled with U.S. taxpayers' increased awareness of their foreign tax and reporting obligations were major forces behind the IRS' planned closure of OVDP (IR-2018-52). Since the rollout of OVDP in 2009, over 56,000 taxpayers have utilized the program to become compliant with their foreign reporting and tax obligations. OVDP has reportedly brought in $11.1 billion in taxes, interests, and penalties.

Other options for U.S. taxpayers with undisclosed foreign assets will remain available, such as the Streamlined Filing Compliance Procedures (available for certain U.S. taxpayers who are not under audit and whose conduct was not willful) and delinquent Report of Foreign Bank and Financial Account (FBAR) submission procedures. Of all available IRS voluntary compliance options for U.S. taxpayers to disclose foreign income and assets, OVDP is the only program that offers a true "peace of mind" for taxpayers, with the process culminating in a closing agreement (Form 906) that effectively puts the matter to rest and avoids further audit and/or criminal investigation with respect to the matters addressed in the closing agreement.

— Katrina W. Wu, Esq. and

Brian M. Katusian, Esq.,

San Diego

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Tax Code Changes and Charitable Giving.

Two provisions of the Tax Cut and Jobs Act of 2017 ("2017 Tax Act") may negatively affect charitable giving in the U.S. One change pertains to the increase in the estate and gift tax exemption to $10 million (adjusted for inflation to be...