In a Chief Counsel Advisory, the IRS discussed whether it had authority to share confidential taxpayer information with the Treasury Department’s Office of Fiscal Assistant Secretary (“OFAS”). In discussing the restrictions on such disclosure, the advisory also identified key compliance issues in connection with the Section 1603 tax grant.
The OFAS is tasked with administering and ensuring compliance with the Section 1603 program. If OFAS detects an overpayment or erroneous payment, it can seek recapture and recovery of such amount. On the other hand, the IRS is responsible to ensure the propriety of tax credits taken. While the IRS cannot recapture a Section 1603 grant, it can determine that an overpayment or erroneous payment is taxable to the taxpayer-applicant.
Of interest in the advisory is the discussion regarding two key issues to be examined by the OFAS and IRS in their compliance efforts. Applicants who are filing their Section 1603 applications, or those who may need to amend their applications, should take note of these compliance efforts and areas of interest.
The advisory identifies the following two areas of concern :
- Taxpayers may not claim a grant and a tax credit for the same property. If taxpayers receive a grant, the IRS might review their tax return to determine if they also claimed a tax credit for the same property.
- Taxpayers who receive a grant must reduce their tax basis in eligible property by 50%. Depreciation deductions calculated without the 50% deduction will be a red flag to the IRS (and potentially the OFAS).
Finally, after reviewing the Tax Code’s confidentiality rules and exceptions, the advisory concluded that, in most circumstances, the IRS could properly share confidential taxpayer information with the OFAS in connection with its Section 1603 compliance program. Accordingly, the OFAS will have an additional tool to stop overpayment and erroneous payments of the Section 1603 tax grant.