IRS field advice - Foreign personal holding company income realized on software leasing 

July 15: The IRS recently publicly released the following field advice memoranda* from the Office of Chief Counsel:
  • 20132702F [PDF 158 KB] concluding that: (1) rental income from leasing software to third parties outside of a CFC’s country of organization is foreign personal holding company income; and (2) a CFC that engages in mostly administrative and accounting functions does not qualify for the “active marketing exception” under Reg. section 1.954-2(c)(1)(iv) because the CFC does not maintain and operate an organization in a foreign country that is regularly engaged in the business of marketing the software

  • 20132701F [PDF 96 KB] concluding that a grain cooperative’s domestic production activities deduction (DPAD)—resulting from the reclassification of amounts previously classified as grain purchases as per-unit retain allocations paid in money (PURPIMs)—is a deduction incurred in connection with the conduct of patronage business, and can be used only to reduce patronage-sourced income (and not nonpatronage-sourced income)

  • 20132801F [PDF 97 KB] concerning the deduction claimed with respect to liabilities of a former subsidiary when all the stock in the subsidiary is sold to another company and, as part of the contract of sale, the former parent agrees to pay and does pay a contingent liability of the subsidiary.

*Pursuant to section 6110(k)(3), written determinations such as field service advice represent the IRS’s analysis of the law as applied to a taxpayer’s specific facts, and they are not intended to be relied upon by third parties and may not be cited as precedent. They do, however, provide an indication of the IRS’s position on the issues addressed.

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