McDermott Will & Emery

Chicago IL

The Chicago office of McDermott Will & Emery opened in 1934 as the Firm's first office. Although we then focused solely on tax law, we now provide the full range of business-oriented legal services through more than 250 local lawyers.

Show more


Corporate Tax

Tax Court declares state corporate incentives non-taxable income under federal law
USA | 03 May 2019

Many states and municipalities offer substantial economic incentives to corporate taxpayers to move to and invest in their areas. Central to those offers is the belief that these incentives are received tax free. However, owing to changes in the Tax Code under the Tax Cuts and Jobs Act, taxpayers must ensure that such incentives are carefully structured.

Top takeaways for tax-exempt employers from IRS guidance on executive compensation
USA | 01 February 2019

One of the more controversial and complex provisions of the Tax Cuts and Jobs Act has been the 21% excise tax on certain types of non-profit executive compensation. The Internal Revenue Service recently issued interim guidance that addresses how this tax will apply in various situations that commonly arise for tax-exempt employers. However, establishing internal systems to determine which employees are covered by this tax may prove challenging.

Proposed foreign tax credit regulations clarify taxpayers' ability to claim deemed paid credits
USA | 25 January 2019

The Internal Revenue Service and the Department of the Treasury recently released proposed regulations that address the calculation of corporate US shareholders' deemed paid foreign tax credits under Section 960 of the Tax Act. The proposed regulations also clarify that certain foreign income taxes paid by controlled foreign corporations will be lost and that corporate US shareholders cannot claim a deemed paid credit with respect to such taxes.

Proposed BEAT regulations: tax-free transactions may lead to liability
USA | 11 January 2019

The Department of the Treasury and the Internal Revenue Service recently released proposed regulations for the Base Erosion and Anti-abuse Tax (BEAT), which was added to the Internal Revenue Code as part of the Tax Act 2017. The proposed regulations provide helpful guidance on a range of important topics and generally go a long way towards a reasonable implementation of a very challenging statute.

Call for compliance: cryptocurrency may be subject to US tax
USA | 04 January 2019

US taxpayers are generally taxable on income earned worldwide, regardless of the manner in which that income is paid (eg, currency (foreign or domestic) or property (tangible, intangible or virtual)). Therefore, if cryptocurrency has been bought, sold or exchanged, those transactions could be subject to federal tax. If the cryptocurrency is held offshore, a number of offshore reporting obligations could also apply to these holdings.

Proposed Section 956 regulations provide benefits for corporate taxpayers
USA | 21 December 2018

The Internal Revenue Service and US Department of the Treasury recently released proposed regulations that would prevent, in many cases, income inclusions for corporate US shareholders of controlled foreign corporations (CFCs) under Section 956. The proposed regulations are highly favourable to corporate taxpayers by significantly expanding the ability of US corporate borrowers to benefit from the credit support of CFCs.

Tax benefits of Section 338(g) elections to US buyers of CFC stock
USA | 14 December 2018

The 2017 Tax Act significantly increased the tax benefits of a Section 338(g) election for domestic corporate purchasers of stock in a controlled foreign corporation (CFC). If an election is made, buyers are treated as organising a 'new' CFC that purchases the assets of the 'old' target CFC for the amount paid for the CFC stock. For buyers, this stepped-up basis in the CFC's assets can facilitate tax-efficient post-acquisition integration and a reduction of future global intangible low-taxed income.

IRS real-time audit programme: further developments
USA | 07 December 2018

The Internal Revenue Service (IRS) Compliance Assurance Process programme is a real-time audit programme that seeks to resolve the tax treatment of all or most return issues before tax returns are filed. Taxpayers and IRS leadership have generally praised it as one of the most successful corporate tax enforcement programmes. However, its fate has been uncertain in recent years given the IRS's shift in the examination process and the agency's dwindling resources.

Tax reform insight: eligibility requirements for reduced tax rate on FDII for royalties
USA | 10 August 2018

A domestic corporation's royalty income derived in connection with business conducted outside the United States is generally eligible for the reduced 13.125% effective tax rate on foreign derived intangible income. To qualify, the licensee must be a foreign person and the intangible property must be used outside the United States for the ultimate benefit of an unrelated foreign person. The reduced tax rate is also available for certain royalties derived from licensing intangible property to related foreign persons.

Tax reform insight: new foreign tax credit rules may warrant restructuring foreign branches
USA | 06 July 2018

The 2017 Tax Act added a separate foreign tax credit limitation category for income earned in a foreign branch. As a result, certain US groups may be limited in their ability to use foreign income taxes paid or accrued by a foreign branch as a credit against their US federal income tax liability. This new limitation could present a problem for taxpayers with losses in some foreign branches and income in other foreign branches.

Deductible payments to CFCs can result in exorbitant BEAT
USA | 22 June 2018

A minimum tax has been imposed on domestic corporations with substantial amounts of deductible payments made to related foreign persons, referred to as the 'base erosion and anti-abuse tax' (BEAT). BEAT is particularly onerous if a controlled foreign corporation's income is subject to foreign taxation because, while foreign income taxes can be used as a credit to reduce regular tax liability, no foreign tax credit is permitted to offset the BEAT.

IRS implementation of tax reform continues to move forward
USA | 15 June 2018

The latest announcement by the Internal Revenue Service (IRS) focuses on the $10,000 cap on the amount of state and local taxes that can be deducted for federal income tax purposes. In a press release and release of guidance in the form of Notice 2018-54, the IRS announced that proposed regulations will be issued to help taxpayers understand the relationship between federal charitable contribution deductions in exchange for a tax credit against state and local taxes owed.

IRS announces HSA contribution limit increase for 2018
USA | 01 June 2018

The Internal Revenue Service has increased the 2018 maximum deductible health savings account (HSA) contribution for taxpayers with family coverage under a high deductible health plan to $6,900. Employers that previously lowered their plan's contribution limit for HSAs to $6,850 should consider how to address the increased limit and whether any changes or employee communications are necessary.

Waiver leads to double tax liability on patent royalties
USA | 25 May 2018

Declining to address whether certain technology licensing royalties should be subject to taxation as income or capital gains, the US Court of Appeals for the Third Circuit found that a patentee-taxpayer had waived his claim on appeal and affirmed the Tax Court's decision that the royalties should be treated as income. The Third Circuit acknowledged that a patentable invention may be subject to capital gains treatment even without a patent or patent application.

Timely opinion regarding state taxation of Subpart F income and dividends from foreign affiliates
USA | 18 May 2018

The New Mexico Administrative Hearings Office recently issued an opinion that addressed the following questions: under what circumstances can a state constitutionally impose tax on a domestic company's income from foreign subsidiaries, including Subpart F income; and when is factor representation required? Since many state income taxes are based on federal taxable income, inclusion of these new categories of income at the federal level could potentially result in their inclusion at the state level.

Oregon bars use of three-factor apportionment formula
USA | 11 May 2018

The Oregon Supreme Court has rejected a business taxpayer's constitutional challenges to a 1993 Oregon statute that eliminated the right to utilise a three-factor apportionment formula in calculating Oregon income tax. The Oregon Supreme Court joined courts in Texas, Minnesota, California and Michigan in rejecting taxpayer arguments that states which have enacted Article IV of the Multi-state Tax Compact have entered into a binding contractual obligation which may not be overridden.

National taxpayer advocate reminds Congress of IRS deficiencies
USA | 27 April 2018

Taxpayer Advocate Nina E Olson recently testified before a congressional oversight committee regarding ongoing challenges to the administration of an efficient and effective tax system. Her testimony echoes many tax professionals' concerns that the tax system is not being implemented in the most effective and efficient manner. With the advent of tax reform and the government's struggle to implement its sweeping changes, it is hoped that many of these issues will be addressed.

IRS funding woes realised? Audit rate at 15-year low
USA | 20 April 2018

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.

Are changes looming over Tax Court's procedure rules?
USA | 13 April 2018

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.

Illinois confirms treatment of deemed repatriated foreign earnings provisions
USA | 30 March 2018

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.

GILTI rules particularly onerous for non-C corporation CFC shareholders
USA | 09 February 2018

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.

US tax reform measures affecting foreign multinationals
USA | 19 January 2018

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.

Impact of tax reform on private equity and M&A transactions
USA | 12 January 2018

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.

Fringe benefits: what the proposed tax bills mean to the employer
USA | 22 December 2017

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.

Facebook goes to district court to enforce access to IRS appeals
USA | 01 December 2017

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.

Tax Court says IRS's 'drift-net' argument to expand privilege waiver must be anchored in principles
USA | 17 November 2017

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.

IRS and taxpayers continue to battle over Internal Revenue Code Section 199 deduction for computer software
USA | 10 November 2017

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.

Tax Court: prior closing agreement may have relevance in Coca-Cola's transfer pricing case
USA | 03 November 2017

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.

When can a taxpayer dismiss a Tax Court case as moot?
USA | 27 October 2017

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.

Treasury releases report on reducing tax regulatory burdens
USA | 20 October 2017

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.