Everyone who retires from a school district or university not covering employees for Social Security (SS) is subject to GPO. Under a new law - effective July 1, 2004 - if you retire from a school district or university that covers employees for SS and have worked there the last five years you are not subject to GPO. Why is this a big deal? The GPO is a calculation that reduces your SS benefit by two-thirds of your TRS benefit. In many cases the GPO will reduce your SS benefit to zero!

Retirees of TRS are also subject to Windfall Elimination Provision (WEP) if the years at a TRS and SS covered institution are less than 30. WEP is a method to calculate SS benefits without giving a larger benefit to low income workers. Current SS benefits are increased for workers that are considered "low income" -- to eliminate higher benefits paid to those who may have maintained summer or part-time jobs to get the minimum 40 quarters for SS the WEP was enacted.

Retirees who worked their entire careers at a charter school or worker at a school having both TRS and SS AND worked 30 years are not subject to either GPO or WEP.

Spousal and survivor benefits are also covered by the GPO and in many cases reduce the SS benefit to zero.

These rules are rather complicated and if you have questions, give us a call. The Association of Texas Professional Educators has a good website that explains the rules and calculations in greater detail (http://www.atpe.org).

A quick note about Medicare coverage. Anyone with at least 30 quarters of service is eligible to be covered at age 65. Those with less than 40 quarters, or not eligible to receive SS benefits, must pay monthly premiums to receive coverage.

--Paul Ask, CPA

We think that QHDHPs will be growing in availability as time goes on with more insurance companies providing this product. We also think more employers will switch to these as they look for ways to reduce their insurance costs. One trend that was quoted in a seminar we attended was that "higher risk to insure people" have been the first to embrace these products. That makes it unclear if initially the cost of insurance will be competitive on these products, but as they grow in popularity the pool should grow and the costs decrease.

-- Paul Ask, CPA

Not everyone is eligible for a Roth IRA - you must have earned income - sweat of the brow - and the availability is phased out for those with income above $95,000 for single and $150,000 for married filing jointly. Beginning in 2005 the maximum contribution limit is $4,000 with an extra $500 for those 50 years of age and above.

-- Paul Ask, CPA

1 - An FLP is a limited partnership like any other limited partnership -- except only family members are owners.

2 - Income tax treatment is no different from any other limited partnership.

3 - If you set out to use it to save estate and gift tax - you will lose your case.

That being said, a FLP is still a good vehicle to use for other valid reasons. The main reasons to use a FLP are for multiple ownership with central control and to keep an asset(s) together for management. Assets could include real estate (farm land, apartments, commercial buildings, raw land, etc) or investments (stocks, bonds, etc.) Sometimes because of a diverse family situation such as farmers and city dwellers, the owners may have differing views and individually owned land may cause a farm to be sold. In order to prevent this, a parent may put the land in a FLP to preserve the family farm. You may have a large investment portfolio and to prevent it from being split-up thereby losing the economies of scale and lower investment management fees, it can put into a FLP. The FLP will generally have language that forbids owners from mortgaging their portion, selling or transferring their portion or otherwise threatening the FLP as a unit. The FLP should have mandatory income distributions to give all owners a true economic interest.

So why is it that a FLP is "sold" as an estate tax savings device? The answer --the asset has been impeded. The whole reason to set this up is to make it difficult to split apart -- to carry the wishes of those setting it up to another generation. First the ones setting it up are giving up total control over the assets and spreading the control to other family members who have differing opinions. You cannot take it back! Second the one receiving an ownership interest does not have full say so over the use of the asset. These two factors need to be considered carefully before creating a FLP.

An attorney familiar with a FLP needs to be used for the set up. The reasons for setting up an FLP need to be carefully considered and then the reasons need to be carefully documented. If gifting is intended, a qualified appraiser must be used to value any gifts. This may be each year depending upon the frequency of the gift. Lastly, the FLP should be reviewed no less than annually and preferable quarterly for asset management and applicable law changes.

See how simple that is! If you have questions, please fee free to call or email the office.

-- Paul Ask, CPA

President Trump recently walked back consideration of capital gains indexing and a payroll tax cut, less than 24 hours after signaling his support for both.

President Trump recently walked back consideration of capital gains indexing and a payroll tax cut, less than 24 hours after signaling his support for both.

Payroll Tax Cut
Reports on Capitol Hill had begun swirling recently that the Trump administration was considering cutting payroll taxes.

"We’re looking at various tax reductions," Trump told reporters at the White House on August 20. "I have been thinking about payroll taxes for a long time," he added. "A lot of people would like to see that."

However, White House staff swiftly denied that any payroll tax cut was under consideration, according to several reports.

Along those lines, Michael Zona, communications director for Senate Finance Committee (SFC) Chairman Chuck Grassley, R-Iowa, told Wolters Kluwer on August 20 that no such discussions were occurring between the SFC majority and the president. "Chairman Grassley has not discussed a potential payroll tax cut with the Administration," Zona told Wolters Kluwer.

Payroll taxes are used to fund certain social programs such as Social Security and Medicare. Generally, payroll taxes are paid primarily through the wages and salaries of employees, as noted by the nonpartisan Tax Foundation. Amid recent reports that the U.S. economy could be heading toward a recession, cutting payroll taxes could potentially benefit middle-income taxpayers and bolster consumer spending.

On August 20, Trump disputed the notion that a recession could be around the bend. Additionally, Trump told reporters that any consideration of a payroll tax cut is unrelated to mostly Democratic claims of an impending recession. In that vein, Zona told Wolters Kluwer on August 20 that "[a]t this point, recession seems more of a political wish by Democrats than an economic reality."

Indexing Capital Gains to Inflation
Further, Trump confirmed to reporters at the White House on August 20 that he is still considering indexing capital gains to inflation. Lately, lawmakers have become increasingly vocal concerning their differing viewpoints on the matter, both as to tax policy and legality.

"We’ve been talking about indexing [capital gains to inflation] for a long time," Trump said. "It can be done directly by me…I can do it directly," he said, referencing a recent uptick in debate between Republican and Democratic lawmakers on the legality of such an executive move.

No Tax Cuts, No Indexing
Then on August 21, Trump told reporters at the White House that "I’m not looking at a tax cut now; we don’t need it. We have a strong economy."

Additionally, Trump followed up his initial assertion of authority to circumvent Congress on the tax policy issue by stating on August 21 that if he wanted to unilaterally index capital gains to inflation, he would need a letter from the Attorney General.

However, the longstanding Republican and Democratic debate as to whether the executive branch has authority to index capital gains to inflation appears to be moot, at least for the time being.

"I’m not looking to do indexing," Trump said on August 21. "I’ve studied indexing for a long time. I want tax [cuts] for middle-class workers. I think indexing is probably better for the upper income groups; I’m not looking to do that."

The Senate’s top tax writers have released the first round of bipartisan task force reports examining over 40 expired and soon to be expired tax breaks known as tax extenders. Congress is expected to address these particular tax breaks, as well as temporary tax policy in general, when lawmakers return to Washington, D.C. in September.

The Senate’s top tax writers have released the first round of bipartisan task force reports examining over 40 expired and soon to be expired tax breaks known as tax extenders. Congress is expected to address these particular tax breaks, as well as temporary tax policy in general, when lawmakers return to Washington, D.C. in September.

Tax Extenders Task Forces
Senate Finance Committee (SFC) Chairman Chuck Grassley, R-Iowa, and Ranking Member Ron Wyden, D-Ore., on August 13 released three of six reports detailing the work of bipartisan task forces that were created to examine certain tax breaks, which expired or will expire between December 31, 2017, and December 31, 2019. The three remaining tax extenders task force reports are expected to be released soon.

The reports released by Grassley and Wyden on August 13 were from the following task forces:

• Energy;
• Cost Recovery; and
• Individual, Excise and Other Temporary Tax Policy.

Next Steps
Wyden also highlighted the importance of moving away from the notion of temporary tax provisions in general, which Democrats and Republicans alike largely agree is not good tax policy. "Tax policy should not be set a year or two at a time. We need to find permanent solutions that provide certainty to families and businesses," Wyden said in an August 13 press release.

Grassley and Wyden introduced their bipartisan tax extenders bill earlier this year. However, Grassley reiterated on August 13 that movement of all tax legislation must be initiated in the House. Although House Ways and Means Committee Chairman Richard Neal, D-Mass., has also introduced his own tax extenders proposal, the bill is unlikely to garner enough support from Senate Republicans.

"The next step will be to put together a legislative package based on the proposals that the taskforces received, the areas of consensus among the taskforce members and continued bipartisan discussions," Grassley said in an August 13 press release. "Taxpayers deserve predictability and clarity, and they haven’t received either for far too long on temporary tax policy."

Bonus depreciation guidance that applies to property acquired after September 27, 2017, in a tax year that includes September 28, 2017, allows taxpayers to make a late election or revoke a prior valid election to...

Bonus depreciation guidance that applies to property acquired after September 27, 2017, in a tax year that includes September 28, 2017, allows taxpayers to make a late election or revoke a prior valid election to:

• elect out of 100 percent bonus depreciation;
• elect 100 percent bonus depreciation on specified plants in the year of planting or grafting; or
• elect the 50 percent rate in place of the 100 percent rate.

The late election or revocation may be made by filing an accounting method change, or in certain cases by filing an amended return. The taxpayer must have timely filed its federal tax return for the 2016 or 2017 tax year. Most taxpayers will prefer the administrative ease of filing an accounting method change with their next return and making a single Code Sec. 481(a) adjustment. This route is easier than filling an amended return and, if necessary, amended returns for any subsequent affected year.

Background
The Tax Cuts and Jobs Act ( P.L. 115-97) increased the bonus depreciation rate from 50 percent to 100 percent, effective for property acquired and placed in service after September 27, 2017. Many taxpayers filed returns for a 2016 or 2017 tax year that included September 27, 2017, before proposed bonus depreciation regulations ( REG-104397-18, August 8, 2018) were issued to explain the related bonus depreciation changes. Consequently, the IRS is granting relief to taxpayers, and disregarding the general rule that advance IRS permission must be obtained in a letter ruling to make a late election or revoke a prior election and that making or revoking an election is not an accounting method change.

Amended Returns
A late election or revocation of an election may be made on an amended return for the 2016 or 2017 tax year that includes September 28, 2017. However, according to the guidance, the amended return must be filed before the taxpayer files its federal return for the first tax year succeeding the 2016 or 2017 tax year, and must include the adjustment directly related to the late election or revocation as well as any collateral adjustments. Thus, for a calendar year taxpayer, an amended return for 2017 may be filed if the 2018 tax year return has not been filed. (e.g., if an October 15, 2019 filing extension was obtained).

Accounting Method Changes
Instead of filing an amended return, a taxpayer may file Form 3115, Application for Change in Accounting Method, with a taxpayer’s timely filed federal tax return for the first, second, or third tax year succeeding the 2016 or 2017 tax year that includes September 28, 2017, to make or revoke a covered election.

The automatic consent procedures apply. Accordingly, no fee is required. Multiple Forms 3115 do not need to be filed if more than one election or revocation is made.

Rev. Proc. 2018-31, I.R.B. 2018-22, 637, which lists all automatic accounting method changes, is modified to include this accounting method change.

Deemed Elections
A taxpayer who filed a timely 2016 or 2017 return that includes September 28, 2017, without following the formal election procedures in Rev. Proc. 2017-33, I.R.B. 2017-19, 1236, may be deemed to have made a valid election. Specifically, with respect to property placed in service after September 27, 2017, in a 2016 or 2017 tax year that includes September 28, 2017:

• An election to claim 100 percent bonus depreciation on a specified plant in the year of planting or grafting is considered made if the 100 percent rate was actually claimed on the return.
• An election not to claim bonus depreciation for a class of property is considered made if the taxpayer did not claim 100 percent bonus depreciation (or the elective 50 percent rate) for that class of property on the return.
• An election to claim the 50 percent bonus rate in lieu of the 100 percent bonus rate is considered made if the taxpayer claimed bonus depreciation on all qualified property using the 50 percent rate or on all specified plants in the year of planting or grafting.

These deemed elections may be revoked by filing an amended return or an accounting method change under the general rules above.

The IRS has granted a six-month extension to eligible partnerships to file a superseding Form 1065, U.S. Return of Partnership Income, and furnish corresponding Schedules K-1, Partner’s Share of Income, Deductions, Credits. For a calendar year partnership, the deadline to file Form 1065 and corresponding Schedules K-1 was March 15, which has now been extended to September 15.

The IRS has granted a six-month extension to eligible partnerships to file a superseding Form 1065, U.S. Return of Partnership Income, and furnish corresponding Schedules K-1, Partner’s Share of Income, Deductions, Credits. For a calendar year partnership, the deadline to file Form 1065 and corresponding Schedules K-1 was March 15, which has now been extended to September 15.

The relief is available to a partnership that satisfies the following eligibility requirements for the applicable tax year:

• the partnership has not elected the application of Code Sec. 6221(b) (Election Out for Certain Partnerships with 100 or Fewer Partners);
• it has timely filed Form 1065 and
• it has timely furnished all required Schedules K-1 (without regard to the extensions of time provided by the revenue procedure).

The extensions are available only to partnerships that timely filed Form 1065 and timely furnished Schedules K-1 and also file a superseding Form 1065 and furnish corresponding Schedules K-1 on or before the date that is six-months after the non-extended deadline. Further, the filing and furnishing extensions apply only to partnership tax years that ended prior to the issuance of the revenue procedure and for which the extended due date for the partnership tax year is after July 25, 2019.

The IRS is allowing the extensions because certain Bipartisan Budget Act of 2015 (BBA) partnerships timely filed Form 1065 for the 2018 tax year and timely furnished Schedules K-1 to their partners but may have made errors, including not properly reporting all of the required information on the Schedules K-1. The relief is directed at partnerships that, having timely filed, did not request an extension of the deadline to file and, due to the restrictions on amending Schedules K-1 under Code Sec. 6031(a) may not amend the Schedules K-1, including for the 2018 tax year.

Eligible partnerships taking advantage of the extensions should file a superseding Form 1065 and furnish corresponding Schedules K-1 in the same manner as the original return and Schedules K-1 and write on the top of the superseding Form 1065 "SUPERSEDING FORM 1065 PURSUANT TO REVENUE PROCEDURE 2019-32."

Proposed regulations increase a vehicle’s maximum value for eligibility to use the fleet-average valuation rule or the vehicle cents-per-mile valuation rule. The increase to $50,000 is effective for the 2018 calendar year. The maximum value is adjusted annually for inflation after 2018. The proposed regulations provide transition rules for certain employers.

Proposed regulations increase a vehicle’s maximum value for eligibility to use the fleet-average valuation rule or the vehicle cents-per-mile valuation rule. The increase to $50,000 is effective for the 2018 calendar year. The maximum value is adjusted annually for inflation after 2018. The proposed regulations provide transition rules for certain employers.

Taxpayers may rely on the proposed regulations until final regulation amendments are published in the Federal Register.

Depreciation Limits Increased, Inflation Calculation Changed
The Tax Cuts and Job Act ( P.L. 115-97) substantially increased the maximum annual dollar limitations on the depreciation deductions for passenger automobiles. The new dollar limitations are based on the depreciation, over a five-year recovery period, of a passenger automobile with a cost of $50,000. As a result, the IRS issued Notice 2019-8, I.R.B. 2019-3, 354, providing that it intends to amend Reg. §1.61-21(d) and (e) to:

• incorporate a higher base value of $50,000 as the maximum value for use of the vehicle cents-per-mile and fleet-average valuation rules, effective for the 2018 calendar year; and
• adjust the $50,000 base value annually for inflation in 2019 and subsequent years.

Additionally, the Notice provides that the IRS will not publish separate maximum values for trucks and vans for use with the fleet-average and vehicle cents-per-mile valuation rules. For tax years beginning after December 31, 2017, inflation adjustments for these purposes are calculated using both the consumer price index (CPI) automobile component and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) automobile component ( Code Sec. 280F(d)(7)(B)). The C-CPI-U automobile component does not currently have separate components for new cars and new trucks.

The IRS later issued Notice 2019-34, I.R.B. 2019-22, 1257, to:

• provide a 2019 inflation increase to $50,400 for these amounts; and
• announce it would revise Reg. §1.61-21(d) to provide a transition rule for certain employers.

Transition Rules
The proposed regulations include the following transition rules.

Fleet-average valuation rule. If an employer did not qualify to use the fleet-average valuation rule prior to January 1, 2018, because the automobile’s fair market value exceeded the inflation-adjusted maximum value requirement for the year the automobile was first made available to the employee for personal use, the employer may adopt the fleet-average valuation rule for 2018 or 2019, provided the fair market value of the automobile does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

Vehicle cents-per-mile valuation rule. An employer that did not qualify to adopt the vehicle cents-per-mile valuation rule for a vehicle first made available to an employee for personal use before calendar year 2018 may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year for the vehicle if:

• the employer did not qualify to adopt the vehicle cents-per-mile valuation rule because the vehicle’s fair market value exceeded the inflation-adjusted limitation for the year the vehicle was first used by the employee for personal use; and
• the vehicle’s fair market value does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

Similarly, if the employer first used the commuting valuation rule, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year if:

• the employer did not qualify to switch to the vehicle cents-per-mile valuation rule on the first day on which the commuting valuation rule was not used because the vehicle’s fair market value exceeded the inflation-adjusted limitation for the year the commuting valuation rule was first not used; and
• the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

COMMENT 
An employer that adopts the vehicle cents-per-mile valuation rule generally must continue to use the rule for all subsequent years in which the vehicle qualifies for it. However, the employer may use the commuting valuation rule for any year during which use of the vehicle qualifies for the commuting valuation rule.
 

The temporary nondiscrimination relief for closed defined benefit plans provided in Notice 2014-5, I.R.B. 2014-2, 276, is extended through plan years beginning in 2020. Notice 2014-5 provided temporary nondiscrimination relief for certain defined benefit pension plans that were "closed" before December 13, 2013. Notice 2014-5, I.R.B. 2014-2, 276, Notice 2015-28, I.R.B. 2015-14, 848, Notice 2016-57, I.R.B. 2016-40, 432, Notice 2017-45, I.R.B. 2017-38, 232, and Notice 2018-69, I.R.B. 2018-37, 426, are modified.

The temporary nondiscrimination relief for closed defined benefit plans provided in Notice 2014-5, I.R.B. 2014-2, 276, is extended through plan years beginning in 2020. Notice 2014-5 provided temporary nondiscrimination relief for certain defined benefit pension plans that were "closed" before December 13, 2013. Notice 2014-5, I.R.B. 2014-2, 276, Notice 2015-28, I.R.B. 2015-14, 848, Notice 2016-57, I.R.B. 2016-40, 432, Notice 2017-45, I.R.B. 2017-38, 232, and Notice 2018-69, I.R.B. 2018-37, 426, are modified.

Closed Defined Benefit Plans
Employers have been moving away from traditional defined benefit plans for rank and file employees. Existing plans are sometimes closed for new employees as of a specified date. These plans are referred to as "closed plans," and the employees who continue to earn pension benefits under the closed plan are often known as a "grandfathered group of employees."

Closed plans must continue to meet the coverage and nondiscrimination tests, but they may eventually find it difficult because the proportion of the grandfathered group of employees who are highly compensated employees compared to the employer’s total workforce increases over time. This occurs because grandfathered employees usually continue to receive pay raises and so may become highly compensated employees, while new employees who are generally nonhighly compensated employees are not covered by the closed plan.

Notice 2014-5 Relief
For plan years beginning before 2016, Notice 2014-5 provides testing relief for defined benefit/defined contribution plans that include a closed defined benefit plan that was closed before December 13, 2013. Under this relief the plan can demonstrate satisfaction of the nondiscrimination in amount requirement on the basis of equivalent benefits, even if the does not meet any of the existing eligibility conditions for testing on that basis.

This relief has been extended several times in anticipation of the IRS issuing final amendments to the Code Sec. 401(a)(4) regulations. Most recently the relief was extended until plan years beginning in 2019, and it is now extended for plan years beginning in 2020. The IRS issued proposed regulations in 2016 to provide a permanent fix ( NPRM REG-125761-14, Jan. 29, 2016). The IRS expects the final regulations will provide that the reliance granted in the preamble to the proposed regulations may be applied for plan years beginning before 2021.

The IRS has adopted final regulations with respect to the allocation by a partnership of foreign income taxes. The final regulations are intended to improve the operation of an existing safe harbor rule. This safe harbor rule, under Reg. §1.704-1(b)(4)(viii), determines whether allocations of creditable foreign tax expenditures (CFTEs) are deemed to be in accordance with the partners’ interests in the partnership.

The IRS has adopted final regulations with respect to the allocation by a partnership of foreign income taxes. The final regulations are intended to improve the operation of an existing safe harbor rule. This safe harbor rule, under Reg. §1.704-1(b)(4)(viii), determines whether allocations of creditable foreign tax expenditures (CFTEs) are deemed to be in accordance with the partners’ interests in the partnership.

The final regulations—

• clarify the effect of Code Sec. 743(b) adjustments on the determination of net income in a CFTE category;
• include special rules regarding how deductible allocations (that is, allocations that give rise to a deduction under foreign law) are taken into account for purposes of determining net income in a CFTE category;
• include special rules regarding how nondeductible guaranteed payments (that is, guaranteed payments that do not give rise to a deduction under foreign law) are taken into account for purposes of determining net income in a CFTE category; and
• include a clarification of the rules regarding the treatment of disregarded payments between branches of a partnership for purposes of determining income attributable to an activity included in a CFTE category.

A transition rule applies to partnerships whose agreements were entered into before February 14, 2012.

Transactions involving digital content and cloud computing have become common due to the growth of electronic commerce. The transactions must be classified in terms of character so that various provisions of the Code, such as the sourcing rules and subpart F, can be applied.

Transactions involving digital content and cloud computing have become common due to the growth of electronic commerce. The transactions must be classified in terms of character so that various provisions of the Code, such as the sourcing rules and subpart F, can be applied.

Digital Content Transactions
Existing Reg. §1.861-18 provides rules for classifying transactions involving computer programs. The proposed regulations broaden the scope of the rules to apply to all transfers of digital content. "Digital content" is defined as any content in digital format that is either protected by copyright law or is no longer protected due solely to the passage of time.

The proposed regulations clarify that a transfer of the mere right to public performance or display of digital content for advertising does not alone constitute a transfer of a copyright.

Additionally, the proposed regulations clarify the title passage rule. When there is a sale of a copyrighted article through an electronic medium, the sale will occur at the location of the download or installation onto the end user’s device, or, in the absence of that information, the location of the customer.

A sale of personal property occurs at the place where the rights, title, and interest of the seller in the property are transferred to the buyer. If bare legal title is retained by the seller, the sale occurs where beneficial ownership passes.

Cloud Computing Transactions
Cloud computing transactions are typically characterized by on-demand network access to computer resources. The proposed regulations classify a "cloud transaction" as either:

• a lease of property (i.e., computer hardware, digital content, or other similar resources); or
• a provision of services.

The proposed regulations provide a nonexhaustive list of factors for determining how a cloud transaction is classified. In general, application of the relevant factors will result in a transaction being treated as a provision of services, rather than a lease of property. The factors include both statutory factors under Code Sec. 7701(e)(1) and factors applied by the courts.

The IRS Large Business and International Division (LB&I) has withdrawn its directive to examiners that provided instructions on transfer pricing issue selection related to stock based compensation (SBC) in cost sharing arrangements (CSAs).

The IRS Large Business and International Division (LB&I) has withdrawn its directive to examiners that provided instructions on transfer pricing issue selection related to stock based compensation (SBC) in cost sharing arrangements (CSAs).

U.S. taxpayers that are cost sharing participants must include SBC as intangible development costs (IDCs), under Reg. §1.482-7A(d)(2) and Reg. §1.482-7(d)(3) if these costs are directly identified with, or reasonably allocable to, the intangible development activity of the CSA. In 2015, the Tax Court invalidated Reg. §1.482-7A(d)(2) in Altera Corp., 145 TC 91, Dec. 60,354. The IRS appealed Alteraand issued Directive LB&I-04-0118-005 on January 12, 2018, directing examiners to stop opening new examinations for issues related to SBC included in CSA IDCs until the outcome of the Altera appeal was known.

On June 7, 2019, the U.S. Court of Appeals for the Ninth Circuit reversed the Tax Court’s opinion (Altera Corp., CA-9, 2019-1 ustc ¶50,231). Based on the Ninth Circuit’s decision, LB&I has formally withdrawn LB&I-04-0118-005.

LB&I has instructed examiners to continue applying Reg. §§1.482-7A(d)(2) and 1.482-7(d)(3), including opening new examinations of CSA SBC issues when appropriate. Because the issues may be factually intensive, LB&I states that transfer pricing teams should develop the facts to support their analyses and conclusions. Finally, LB&I instructs issue teams to consider consulting the Practice Network and Counsel where appropriate, for support in developing the most reliable analyses of this issue.

LB&I will continue to monitor further developments related to the Ninth Circuit’s decision.