Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued final regulations that provide guidance regarding the treatment of controlled services transactions under Code Sec. 482 and the allocation of income from intangible property, in particular with respect to contributions by a controlled party to the value of an intangible owned by another controlled party. The final regulations also modify regulations under
Code Sec. 861 with respect to stewardship expenses, so that these provisions are consistent with the changes to the Code Sec. 482 regulations concerning controlled services transactions.

  CCH Comment.
Code Sec. 482 generally provides that the IRS may allocate gross income, deductions and credits between or among two or more taxpayers owned or controlled by the same interests in order to prevent evasion of taxes or to clearly reflect income of a controlled taxpayer. Final, temporary and proposed regulations issued in 2006 relating to the treatment of controlled service transactions, the allocation of income from intangible property, and stewardship expenses generated a number of comments from taxpayers, their representatives, and industry and professional groups.

  Both the format and the substance of the final regulations are generally consistent with the 2006 temporary regulations, and make clear that application of the services cost method (SCM) is a matter within the control of the taxpayer, as previously indicated in Notice 2007-5, 2007-1 CB 269. In order for the SCM to be applicable, the final regulations clarify that the service must be a covered service, cannot be an excluded activity, and cannot be precluded from constituting a covered service by reason of the business judgment rule, and adequate books and records must be maintained with respect to the service.

  Although comments were received requesting that the proposed list of specified covered services be expanded, the final regulations do not add to the list set forth in Rev. Proc. 2007-13, 2007-1 CB 295. In response to comments concerning the business judgement rule, the final regulations clarify that it is determined on a controlled group basis and determined by reference to a trade or business of the controlled group. The final regulations also clarify language concerning the comparable uncontrolled services price method, provide additional guidance concerning the application of the comparable profit split and residual profit split methods to controlled services transactions in Reg. §1.482-9(g) and Reg. §1.482-6(c)(3)(i)(, and clarify certain examples with respect to the profit split method and economic substance considerations.

  The regulations conforming the stewardship expense regulations under Code Sec. 861 are applicable for tax years beginning after December 31, 2006. The Code Sec. 482 regulations are applicable for tax years after July 31, 2009, but may by election be applied retroactively to any tax year beginning after September 10, 2003.

T.D. 9456, 2009FED ¶47,025

Other References:

 
Code Sec. 482

  CCH Reference - 2009FED ¶22,282B

  CCH Reference - 2009FED ¶22,282CK

  CCH Reference - 2009FED ¶22,282D

  CCH Reference - 2009FED ¶22,282EK

  CCH Reference - 2009FED ¶22,282F

  CCH Reference - 2009FED ¶22,282GE

  CCH Reference - 2009FED ¶22,282J

  CCH Reference - 2009FED ¶22,282JK

  CCH Reference - 2009FED ¶22,282N

  CCH Reference - 2009FED ¶22,282R

  CCH Reference - 2009FED ¶22,282SG

  CCH Reference - 2009FED ¶22,282T

  CCH Reference - 2009FED ¶22,282U

 
Code Sec. 861

  CCH Reference - 2009FED ¶27,138

  CCH Reference - 2009FED ¶27,139

  CCH Reference - 2009FED ¶27,140

  CCH Reference - 2009FED ¶27,141

  CCH Reference - 2009FED ¶27,142

  CCH Reference - 2009FED ¶27,143

  CCH Reference - 2009FED ¶27,145

 
Code Sec. 6038A

  CCH Reference - 2009FED ¶35,561A

  CCH Reference - 2009FED ¶35,561C

 
Code Sec. 6662

  CCH Reference - 2009FED ¶39,653C

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 30,104.10
CCH Reference - TRC ACCTNG: 30,106
CCH Reference - TRC INTL: 15,110.10