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

Volume 27 Number 52
Monday, December 29, 2008

Final Rules Issued on Transactions Between Consolidated Group Members

IRS issues final rules (T.D. 9442) on the treatment of transactions involving obligations between members of a consolidated group, modifying anti-abuse rules from the proposed regulations, and making a host of other clarifications. The final regulations shift the framework for anti-abuse rules to one in which the rules will apply when there is an intent to secure a tax benefit, rather than when there is a reasonable expectation of a material tax benefit. They also clarify numerous exceptions.

Long-Awaited Final Rules Issued on Contract Manufacturing Arrangements

IRS issues anticipated proposed, temporary, and final rules (REG-150066-08; T.D. 9438) on contract manufacturing arrangements among controlled foreign corporations, making changes to dozens of key areas. IRS liberalizes the “substantial contribution” test available to companies to qualify for a manufacturing exception to taxable Subpart F income for goods made through a contract manufacturing process.

Rules Make Form 944 Participation Voluntary, Incorporate Safe Harbor

IRS issues final and temporary rules (T.D. 9440) and revised proposed rules (REG-148568-04) allowing certain employers to file an annual federal tax return rather than a quarterly return, as well as providing a new method for quarterly return filers to determine if the amount of accumulated employment taxes is considered de minimis. The rules allow certain employers to file Form 944 rather than using the quarterly form, Form 941.

Temporary Regulations Challenged by Partnership as Violating TEFRA Valid

The Tax Court holds, in New Millennium Trading LLC v. Comr., that temporary regulations providing that partner-level defenses can only be asserted through refund actions and may not be asserted in a partnership-level proceeding are valid and consistent with the statutory scheme laid out by Congress in the Tax Equity and Fiscal Responsibility Act.

FOCUS: EESA Affects Offshore Fund Managers' Deferred Compensation

The author of this week's Focus examines the effect of new §457A on deferred compensation arrangements of offshore fund managers. “Under §457A, offshore fund managers will be unable to defer fee income attributable to services performed after 2008. In addition, §457A requires that existing deferrals be recognized in a taxable year beginning before 2018,” the author writes. He adds that while there are many open questions, “the breadth of regulatory authority granted to Treasury is such that any planning that circumvents the purpose or intent of §457A may create significant tax risks.”