6041

On August 9, 2019, Treasury and the IRS issued proposed regulations under section 861 of the Code to clarify how transactions involving digital content and cloud computing are classified for tax purposes.  The new rules propose to revise and expand upon Treasury Regulation § 1.861-18 regarding digital content transactions and establish new Treasury Regulation § 1.861-19 regarding cloud computing transactions.  The proposed regulations also propose changes to Treasury Regulation § 1.861-7 regarding the source rules for sales of personal property.  Collectively, the rules are intended to address whether a digital transaction is characterized as a sale, lease, license, or provision of services for purposes applying various provisions of the Code, including the source rules, which are critical for purposes of determining whether withholding is required under Chapter 3 and reporting obligations under sections 6041 and 6050N, and Subpart F.
Continue Reading Proposed Regulations Provide Guidance for Classification of Digital Content Transactions and Cloud Transactions

Earlier this month, the IRS announced in interim guidance that it would amend Section 20.1.7 of the Internal Revenue Manual to provide a methodology for the calculation of intentional disregard penalties under Section 6721 for filers who fail to file information returns electronically when required.  In general, filers of more than 250 information returns are required to file such returns electronically with the IRS.  For this purpose, each type of information return is considered separately, so that a filer who files 200 Forms 1099-DIV and 200 Forms 1042-S is not required to file electronically.  In contrast, if the filer was required to file 300 Forms 1099-DIV and 200 Forms 1042-S, it must file the Forms 1099-DIV electronically, but may file Forms 1042-S on paper.

Section 6721 imposes a penalty of $250 for failures that are not due to intentional disregard.  Section 6721(e) provides an increased penalty for cases of intentional disregard.  In general, the increased penalty is equal to $500 or, if greater, a percentage of the aggregate amount of the items required to be reported correctly on the returns.  Information returns required under Section 6045(a) (Form 1099-B and Form 1099-MISC, Box 14), Section 6050K (Form 8308), and Section 6050L (returns by donees relating to dispositions of donated property within two years of the donor’s contribution of such property) are subject to a penalty of 5% of the amount required to be reported.  Returns required to be filed under Section 6041A(b) (Form 1099-MISC, Box 9), Section 6050H (Form 1098), and Section 6050J (Form 1099-A) are subject only to the flat $500 per return penalty.  Information returns required under other sections are subject to a penalty of 10% of the amount required to be reported.  (Different penalties apply for failures to file correct Forms 8300, but such forms are not subject to the mandatory electronic filing requirements of Section 6011.)
Continue Reading IRS Provides Guidance on Calculating Intentional Disregard Penalties for Paper Filings