Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 8/1/2017


Thank you for subscribing to our firm’s Tax Law Alert. In this newsletter you will find information on updates and changes in the law on both the Federal and State level. If you have any questions pertaining to this information, please contact our tax law group.


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Libor to be Phased Out

On July 27, 2017, British regulators announced that they plan to phase out the Libor interest rate benchmark by 2021, replacing it with new benchmarks that are less susceptible to manipulation.

Libor stands for the London interbank offered rate. To set Libor, panels of banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and at varying maturities. The Libor rate is used as the underlying rate for many financial products worldwide, including home loans and credit cards to small business loans.

Reliance on Libor has received criticism in recent years after several banks were accused of adjusting their Libor submissions to benefit themselves and their traders’ positions, rather than the actual rates at which the banks were making loans. The rate-rigging scandals led to billions of dollars in fines against (and shook the reputation of) some of the world’s biggest banks.

British authorities indicated that a new benchmark, the SONIA (Sterling Over Night Index Average), is a potential replacement to Libor.

The Federal Reserve has already begun preparing for the replacement. In June, the Alternative Reference Rates Committee, a group made up of the largest U.S. banks, voted to use a benchmark based on repo trades (i.e., short-term loans backed by Treasury securities) to replace U.S. dollar Libor. The new rate is expected to be phased in starting in 2018.

Simplified Method of Obtaining Extension to Make Portability Election

The IRS recently issued Revenue Procedure 2017-34, which provides a simplified method for obtaining an extension of time to make a portability election under IRC § 2010(c)(5)(A) if certain requirements are met. A portability election allows a surviving spouse to use the decedent spouse’s unused estate tax exclusion amount for subsequent transfers made by the surviving spouse during life and at death. Under Treas. Regs. § 20.2010-2(a)(1), an executor wanting to take advantage of portability must file a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, within nine months of the decedent’s date of death, unless an extension of time for filing has been granted.

Prior to the issuance of Revenue Procedure 2017-34, an executor of an eligible estate could only obtain an extension of time to make a portability election by requesting a private letter ruling under Treas. Regs. § 301.9100-3, showing that the estate acted reasonably and in good faith in failing to make a timely election and that the extension would not prejudice the interests of the government, and remitting the requisite user fee. After issuing numerous rulings granting extensions to make a portability election over the past few years, the IRS decided to implement a simplified extension process.

Pursuant to Revenue Procedure 2017-34, all eligible estates have an automatic extension of time to make a portability election until the later of January 2, 2018 or the second anniversary of the decedent’s death. To be eligible, (A) the decedent must (i) have died after December 31, 2010, (ii) be survived by a spouse, and (iii) be a U.S. citizen or resident and (B) the estate must (i) not be otherwise required to file a Form 706 based on the value of the decedent’s gross estate and (ii) not have filed a Form 706 within the time required. To obtain the automatic extension, the eligible decedent’s executor must file a complete and proper Form 706 on or before the later of January 2, 2018 or the second anniversary of the decedent’s death, and the Form 706 must include the following statement at the top: “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” This simplified method is the exclusive procedure to be used in lieu of requesting a private letter ruling; and, unlike requesting a private letter ruling, there is no user fee associated with this simplified method.

To obtain relief for a late portability election after the later of January 2, 2018 or the second anniversary of the decedent’s death, the executor must request a private letter ruling under Treas. Regs. § 301.9100-3 and remit the requisite user fee.

Treasury and IRS Delay Implementation of Earnings-Stripping Documentation Rules

Pursuant to Notice 2017-36, the Treasury Department and the Internal Revenue Service announced that they would delay the documentation requirements of the controversial earnings-stripping regulations until 2019. The documentation regulations will apply only to interests that are issued or deemed to be issued on or after January 1, 2019. The rules would have originally been effective in 2018.

In sum, the regulations, which were issued on April 6, 2016, introduced new documentation requirements and other rules for inter-company debt. The regulations were issued under IRC § 385, which gives Treasury the authority to distinguish between debt and equity, affecting whether a company can recognize tax-deductible interest payments.

It is worth noting that the regulations were identified by the Trump administration as rules that could be rescinded for imposing an undue burden on business.


2017 Louisiana Sales Tax Holiday (Friday, August 4th through Saturday, August 5th)

The annual Louisiana Sales Tax Holiday begins this Friday, August 4th and runs through Saturday, August 5th.

In past years, the sales tax holiday provided a full exemption from state sales tax on the first $2,500 of the purchase price of most items of tangible personal property. Because of legislative changes to the state sales tax statute in 2016 (see our prior tax alert on such changes here), the upcoming sales tax holiday will provide only a partial exemption from state sales tax. Eligible purchases during this year’s sales tax holiday are subject to a state sales tax rate of three percent (3%), rather than the otherwise applicable state sales tax rate of five percent (5%).

The sales tax holiday exemption does not apply to the following transactions:

1. vehicle purchases;
2. meal purchases;
3. the purchase of taxable services; or
4. the lease or rental of tangible personal property.
Note that the state sales tax holiday applies only to state sales taxes. Local sales taxes apply in full unless specifically exempted by the applicable local taxing authority.

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The information contained within this newsletter does not constitute legal advice and is not intended to create an attorney-client relationship. You should consult an attorney for individual advice regarding your own particular situation.



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