TAM 200839033: IRS withdraws earlier mortgage-securities capital-asset advice

Plain-English summary

An earlier technical advice memorandum concluded that a taxpayer's dollar-rolled mortgage-backed securities were not acquired in the ordinary course of business for services rendered under Section 1221(a)(4). The Treasury Department and IRS later withdrew proposed regulations on when receivables are acquired for services and stated that they would not challenge reporting positions applying existing law. To place this taxpayer on the same footing as others relying on that withdrawal, the IRS withdrew the earlier memorandum's Section 1221(a)(4) discussion. The separate portion concerning a closing agreement remained in effect.

Ruling snapshot

• Question: Should the Section 1221(a)(4) portion of the taxpayer's earlier technical advice memorandum remain in effect after the proposed regulations were withdrawn?
• Outcome: Advice given. That portion is withdrawn, while the closing-agreement portion is unchanged.
• Key authorities: IRC § 1221(a)(4); 73 Fed. Reg. 21861.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM

June 12, 2008

Third Party Communication: None
Date of Communication: Not Applicable

Number: 200839033
Release Date: 9/26/2008
Index (UIL) No.: 1221.00-00, 1221.05-00
CASE-MIS No.: TAM-126318-08

Director of Field Operations, Manhattan
L:F:DFO:M

Taxpayer's Name: ----------------------------------------------------
Taxpayer's Address: --------------------------------
--------------------------------------
Taxpayer's Identification No ----------------
Years Involved: ------------------------
Date of Conference: ---------------------

LEGEND:

Taxpayer = ----------------------------------------------------

On August 31, 2006, a technical advice memorandum (TAM-119153-04, TAM
200651033) was issued concerning Taxpayer. The TAM concluded, in part, that Taxpayer’s dollar rolled mortgage backed securities were not acquired in the ordinary course of trade or business for services rendered within the meaning of section 1221(a)(4).

   On April 23, 2008, the Treasury Department and the IRS published in the Federal

Register (73 FR 21861) a withdrawal of notice of proposed rulemaking relating to the circumstances in which accounts or notes receivable are “acquired … for services rendered” within the meaning of section 1221(a)(4). The withdrawal of notice of proposed rulemaking states that the IRS will not challenge return reporting positions of taxpayers under section 1221(a)(4) that apply existing law, including Burbank Liquidating Corp. v. Commissioner, 39 T.C. 999 (1963), acq. sub nom. United Assocs.,
TAM-126318-08 2

Inc., 1965-1 C.B. 3, aff’d in part and rev’d in part on other grounds, 335 F.2d 125 (9th Cir. 1964); Federal National Mortgage Association v. Commissioner, 100 T.C. 541 (1993); and Bieldfeldt v. Commissioner, 231 F.3d 1035 (7th Cir. 2000), cert. denied, 534 U.S. 813 (2001). See also Rev. Rul. 80–56, 1980–1 C.B. 154; Rev. Rul. 80–57, 1980–1 C.B. 157.

In order to place Taxpayer on equal footing with other taxpayers that may rely on the withdrawal of notice of proposed rulemaking, the portion of the TAM relating to issue 1 (the section 1221(a)(4) discussion) is withdrawn. The portion of the TAM regarding issue 2 (the closing agreement) is unaffected by this document.

CAVEAT(S):

A copy of this technical advice memorandum is to be given to the taxpayer(s). Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.