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Bramwell's Lunch Beat: Inversion Deal, Trump Tax Returns, Google Tax Pact

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Jan 25th 2016
Staff Writer and Editor AccountingWEB
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Johnson Controls, Tyco merge in tax-avoiding inversion deal
Nathan Bomey of the USA Today wrote that manufacturing giants Johnson Controls and Tyco International plan to merge, creating an industrial conglomerate with $32 billion in annual revenue. The deal marks the latest occurrence of a corporate inversion, in which a US-based company acquires a foreign firm and switches its headquarters to the foreign firm's home to lower its tax bill. Milwaukee-based Johnson Controls will shift its legal and global headquarters to Tyco's base in Cork, Ireland, but will house its primary operational headquarters in Milwaukee. Shareholders of Johnson Controls will own 56 percent of the combined company, which will be known as Johnson Controls PLC, and receive $3.9 billion in cash. Tyco shareholders will own 44 percent. The companies expect to shed $500 million in costs over the first three years of the deal and expect to save $150 million annually in taxes.

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Trump vows to release his tax returns
During an appearance on NBC's Meet the Press on Sunday, Republican presidential frontrunner Donald Trump said his team is working on releasing his income tax returns, wrote Colin Wilhelm of Politico. “We're working on that now. I have big returns, as you know, and I have everything all approved and very beautiful, and we'll be working that over in the next period of time,” he told NBC host Chuck Todd. Trump declined to give a timeline for releasing his returns, which he'd previously said he'd release only “when we find out the true story on Hillary [Clinton]'s emails.” “But I will say this,” Trump said, “and I'm very proud to say it, I think the country is run horribly. I hate what they do with our money. And unlike everybody else, I try to pay as little tax as possible because I hate what they do with my tax money.”

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Longshot corporate tax plan may be aided by Portman's tough race
A long-shot bid to cut taxes this year on US companies' overseas profits may depend heavily on how much Republicans want to help the re-election bid of one endangered senator – Rob Portman (R-OH), wrote Steven Dennis of Bloomberg. Portman made a pitch to party members recently at a retreat in Baltimore that they shouldn't punt the international tax issue to the next president. In addition to getting companies to repatriate trillions of dollars in corporate profits piling up overseas, he and other lawmakers want to curb corporate inversions that have major companies, such as Pfizer Inc., heading for lower-tax countries. But while Portman is pushing for a deal, and top tax writers and the Obama administration are also talking up the possibility, a number of pitfalls will make a deal hard to reach before the election. The most obvious is the opposition of Senate Majority Leader Mitch McConnell (R-KY), who prefers a broad tax overhaul instead of dealing with international taxes separately.

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Google agrees to pay $185 million in UK tax settlement
Google parent Alphabet Inc. has agreed to pay 130 million pounds ($185 million) in a tax settlement with UK authorities, setting off a backlash as opposition politicians questioned the government's handling of the case, wrote Brian Womack of Bloomberg. Google will adopt a new approach for UK taxes, and the settlement covers taxes going back to 2005, the company said on Jan. 22. Alphabet has been criticized for paying a fraction of the taxes due on sales in the United Kingdom. For example, the tech giant paid $16 million in UK corporation tax from 2006 to 2011 on $18 billion of revenue, according to a panel in 2013. The pact divided politicians in the United Kingdom. While Chancellor of the Exchequer George Osborne said it was a “victory” for the government's policies, Shadow Chancellor John McDonnell said the bill was “derisory” and looked like a “sweetheart deal,” and he would call for it to be investigated by the public-sector watchdog.

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IRS technical guidance roundup (week of Jan. 18)
The IRS issued the following technical guidance last week:

Revenue Ruling 2016-04 provides various prescribed rates for federal income tax purposes, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by Section 1274. The rates are published monthly for purposes of sections 42, 382, 412, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

Notice 2016-08 announces the intention of the US Treasury Department and the IRS to amend certain provisions of the regulations under Chapter 3 (sections 1441-1464) and Chapter 4 (sections 1471-1474) of the Internal Revenue Code to:

  • Provide that a participating foreign financial institution (FFI) or a reporting Model 2 FFI will submit its pre-existing account certification to the IRS by the same date it is required to submit its first periodic certification of compliance (thereby providing a deferral of the submission date for the pre-existing account certification).
  • Specify the time period and date for submitting a registered deemed-compliant FFI's periodic certification of compliance and provide guidance to local FFIs and restricted funds concerning their obligation to report pre-existing accounts.
  • Modify calendar-year 2015 transitional reporting rules concerning gross proceeds paid to, or with respect to, a nonparticipating FFI's account.
  • Permit withholding agents to rely upon electronically furnished forms W-8 and W-9 collected by intermediaries and flow-through entities.

Taxpayers may rely upon this notice prior to the issuance of amended regulations.

Notice 2016-09 extends the date by which social welfare organizations must notify the IRS of intent to operate under Section 501(c)(4), as required by new Section 506, added to the Internal Revenue Code by the Protecting Americans from Tax Hikes Act of 2015.  With respect to the separate process by which an organization may, at its option, request a determination that it qualifies for Section 501(c)(4) tax-exempt status, the notice states that organizations seeking IRS recognition of Section 501(c)(4) status should continue using Form 1024, Application for Recognition of Exemption Under Section 501(a), until further guidance is issued and clarifies that the filing of Form 1024 will not relieve an organization of the requirement to submit the Section 506 notification.

Quick Links:

  • Why small businesses are getting LinkedIn wrong (Wall Street Journal)
  • AT&T to book $2.2 billion gain from revised pension accounting (Wall Street Journal)
  • Why procrastinating with your tax return could cost you (Washington Post)
  • ‘Tampon tax' comes under fire (The Hill)
  • Dave Camp says tax code makes US companies ripe takeover targets (Bloomberg)
  • Mitt Romney calls on presidential candidates to release tax returns (Huffington Post)
  • Common weaknesses in the Republicans' tax proposals (Huffington Post)
  • Clinton stays silent on step-up controversy (Tax Analysts)
  • No receipts for IRS? Key tax case says they're optional (Forbes)
  • Wealthy react to raising state taxes (Barron's)
  • Adobe shifts hundreds of millions offshore, revealing, like PDF documents, its profits are portable too (Tax Justice Blog)
  • Did Google escape too lightly with its UK tax deal? (Fortune)
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