A shrinking Internal Revenue Service (IRS) budget has meant that fewer agents are available to make sure that the tax laws are being enforced. In 2017 the audit rate fell to its lowest levels in 15 years, with the chance of being audited falling to 0.6%. There has been movement to get the IRS more funding in the wake of tax reform, but it remains to be seen whether some of those funds will be used to increase its enforcement functions.
Tax controversy practitioners are undoubtedly aware of the gradual movement over the years to conform certain Tax Court procedure rules to those of the Federal Rules of Civil Procedure. A few important areas of divergence between the different rules, as well as situations where the Tax Court rules do not address a particular matter, were discussed at the recent Tax Court Judicial Conference.
The Illinois Department of Revenue recently issued additional guidance concerning its treatment of the new deemed repatriated foreign earnings provisions found in Internal Revenue Code Section 965, enacted in the federal tax reform bill. The department confirmed key aspects of Illinois' treatment of the repatriation provisions, including that both the income inclusion and deduction provided for in the provisions will be taken into account in determining a taxpayer's tax base.
The recently enacted tax reform legislation significantly expanded the application of Subpart F, adding a new inclusion rule for non-routine controlled foreign corporation (CFC) income, termed global intangible low-taxed income (GILTI). The GILTI rules apply higher tax rates to GILTI attributed to individuals and trusts that own CFC stock than to C corporation shareholders. There are several steps which individuals and trusts may take to defer or reduce the effect of the GILTI rules on individuals and trusts.
Recent broad tax reform legislation which applies to both US and non-US multinationals with cross-border operations has, among other things, reduced the corporate income tax rate and reformed the US international tax system. Several of the provisions could increase a foreign multinational entity's (FMNE's) US tax liability and compliance and administrative burdens. As such, FMNEs should thoroughly review their US operations, paying particular attention to cross-border payments to non-US related parties.
The 2017 tax reform act is now law, leaving private equity and M&A professionals to digest these significant changes and reconcile the new provisions with how they do business. Among other things, the act provides for a permanent reduction of the corporate tax rate to a flat rate of 21% and repeals the corporate alternative minimum tax. The act will be subject to corrections by and guidance from the US Department of the Treasury and the Internal Revenue Service in the coming months.
In an effort to offset the revenue loss associated with proposed tax cuts, both the House of Representatives tax reform bill and the corresponding Senate draft take aim at the tax treatment of several popular employer-provided fringe benefits. At this early stage of the legislative process, it is important to note that these proposals are subject to change. Nevertheless, it is important for employers to know which of their programmes may be cut or eliminated as soon as 2018.
Taxpayers that are not afforded the opportunity to seek review by Internal Revenue Service appeals after a case has been docketed in the Tax Court should seek to elevate the matter up the chain to obtain reconsideration and reversal of such a decision. If that course of action is unsuccessful, taxpayers should consider other options. In this regard, the outcome of Facebook's recent case in the District Court for the Northern District of California may be instructive.
The Tax Court recently rejected an Internal Revenue Service (IRS) attempt to expand on the privilege waiver principles set out in a previous case. The court concluded that the IRS was not entitled to any documents from the period after a notice of deficiency was issued, making clear that subpoenas are not for broad-based 'fishing expeditions'. The case is consistent with the IRS's recent pattern of arguing aggressively against the assertion of privilege and work-product protections in tax audits.
The Internal Revenue Service (IRS) recently published an Office of Chief Counsel IRS memorandum, which deals with a merchant bank's claim that its revenue from merchant discount fees qualifies as domestic product gross receipts under Internal Revenue Code Section 199. The memorandum is further proof that taxpayers and the IRS do not see eye to eye.
Coca-Cola is seeking a redetermination in the Tax Court of certain Internal Revenue Service (IRS) transfer-pricing adjustments relating to its 2007 to 2009 tax years. The IRS has moved for partial summary judgment seeking a ruling that a 1996 Internal Revenue Code Section 7121 closing agreement executed by the parties is not relevant to the case before the court.
Faced with the prospect of potential tax liability after an unsuccessful audit, taxpayers can file a petition in the US Tax Court before paying the liability or pay the liability, make a claim for refund and sue the government for a refund in a local district court or the Court of Federal Claims. For taxpayers that select the Tax Court route, sometimes a question later arises as to whether they can seek to dismiss their case in order to refile in a different forum.
The US Department of the Treasury recently submitted a report to the president recommending the withdrawal, revocation or revision of eight Treasury regulations in order to eliminate or otherwise mitigate the "burdens imposed on taxpayers". This action springs from Executive Order 13789, which called on the Treasury to identify and reduce tax regulatory burdens that impose undue financial burdens on US taxpayers or otherwise add undue complexity to federal tax laws.
The Internal Revenue Service recently published the first Operational Compliance List since the elimination of the five-year remedial amendment cycle system for individually designed qualified retirement plans. The list identifies certain mandatory and discretionary plan amendments, as well as other significant guidance that affects plan operations.
The Internal Revenue Service recently issued Notice 2016-66, which identifies certain transactions relating to micro-captive insurers as 'transactions of interest'. This designation brings covered captive insurers into a federal reporting regime that requires participants in such transactions, as well as their advisers, to meet certain one-off and annual filing obligations.
The Internal Revenue Service (IRS) recently launched its first wave of compliance campaigns. They cover a broad range of topics, including Tax Equity and Fiscal Responsibility Act partnerships, micro-captive insurance transactions, transfer pricing and repatriation of foreign earnings. This new issue-focused approach means that businesses dealing with any of the identified issues face increased IRS audit risk and should work with their legal advisers to prepare for IRS challenges to their positions.
The Internal Revenue Service (IRS) recently issued Notice 2017-10, identifying certain transactions involving conservation easements as 'listed transactions'. For several years the IRS has been actively examining conservation easements. The new listed transaction designation puts certain conservation easement transactions into a tax reporting and record-keeping regime that may lead to additional IRS income tax and promoter examinations and potentially significant penalties.
The Internal Revenue Service (IRS) recently issued final regulations requiring foreign-owned, single-member limited liability companies to disclose to the IRS their beneficial owners by obtaining a US tax identification number and filing annual returns. Wealth advisers and their clients should be aware that failure to comply could result in significant civil penalties and, if wilful, potential criminal penalties under US law.
The Internal Revenue Service (IRS) recently announced the elimination of the five-year remedial amendment cycle system for individually designed qualified retirement plans. The IRS further announced that each year it will publish a Required Amendments List and an Operational Compliance List in place of the cumulative list of amendments that previously provided guidance on these plans.
The Bipartisan Budget Act of 2015 fundamentally changed the rules by which partnerships and entities taxed as partnerships interact with the Internal Revenue Service in an audit or litigation. Many practitioners have expressed concern that the Bipartisan Budget Act partnership audit rules are unclear and unworkable, and impose significant administrative burdens on taxpayers. Congress has now proposed technical corrections in an attempt to clarify and introduce practicality to the new rules.