The following were originally printed in the Weekly Report, part of the BNA Tax and Accounting Center.

Volume 27 Number 18
Monday, May 5, 2008

Foreign Partnership Withholding Regulations Finalized

The IRS issues final regulations (T.D. 9394) on the withholding obligations of a partnership that has one or more foreign partners and is engaged in a U.S. trade or business, adding some new restrictions and easing others. The rules address situations when a partnership may consider certain deductions and losses of a foreign partner to reduce or eliminate the partnership's obligation to pay withholding tax under §1446 on effectively connected taxable income allocable under §704 to a partner. The IRS says the guidance replaces temporary and final rules and revises proposed rules on the issue.

Fourth Circuit Upholds Summary Judgment in BB&T LILO Shelter Appeal

The Fourth Circuit, in BB&T Corp. v. U.S., applies the substance over form doctrine and affirms a district court's grant of summary judgment in favor of the government, finding that a taxpayer's rental and interest payments pursuant to a lease-in/lease-out (LILO) transaction are nondeductible.

Penalty-Free Withdrawal Allowed for Rebates Directly Deposited Into IRAs

Economic stimulus payments directly deposited into IRAs and other tax-favored accounts may be withdrawn tax-free and penalty-free, the IRS says in Announcement 2008-44. The IRS says the relief is available for amounts withdrawn from these tax-favored accounts that are less than or equal to a taxpayer's directly deposited stimulus payment.

Optional Form Available to Material Advisers for Transaction List

The IRS says in Rev. Proc. 2008-20 that material advisors required to maintain a list of reportable transactions under §6112 can use Form 13976, Itemized Statement Component of Advisee List.

IRS Issues Largely Unchanged Final Rules on Third-Party Summonses

The IRS issues substantially unchanged final rules (T.D. 9395) on summonses and notices on the service of summonses delivered to third parties, emphasizing that it will continue to rely on existing principles in this area and that all recipients of third-party summonses are responsible for assembling and being prepared to produce the required records. The final rules affect third parties who are served with a summons, taxpayers identified in a third-party summons, and other persons entitled to notice of a third-party summons.

FOCUS: New Rules Make Clear Abandoned Security Wholly Worthless

The author of this week's Focus examines final regulations (T.D. 9386) recently issued by the IRS regarding the notion of worthlessness for securities. The author says that the final rules require that, in order to establish the requisite worthlessness, the taxpayer must permanently surrender and relinquish all rights with respect to the security and receive no consideration in exchange for the security.