One of the most pressing audit issues for large taxpayers today centres on the Internal Revenue Code Section 965 transition tax. The Internal Revenue Service has designated Section 965 as a campaign issue and is actively auditing taxpayers' transition tax calculations and positions, along with other tax reform items. The stakes are high, particularly given the potential to pay this tax over eight years.
The Internal Revenue Service (IRS) recently issued guidance on the period of limitations for Section 965 of the Internal Revenue Code transition tax-related adjustments of partnerships. Typically, pursuant to Section 6501, the IRS has three years to assess a tax liability for a tax year. However, Section 6501(e)(1)(C) states that if the taxpayer omits from gross income an amount properly includible in income under Section 951(a), the tax may be assessed at any time within six years after the return was filed.
A recent US Court of Appeals for the 10th Circuit decision underlines the Internal Revenue Service's ability to obtain information that it needs to examine taxpayers' returns using its powerful summons tool. To be successful in defending against a summons, taxpayers must ensure that they have a strong case – for example, non-disclosure based upon a privilege claim.
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides relief to taxpayers in certain situations. Some of these provisions may generate refunds for prior years, such as the relaxation of restrictions on the use of net operating losses and interest deductions, as well as the retroactive availability of additional depreciation relating to qualified improvement property.
The latest developments from the Supreme Court should be noted by taxpayers and practitioners. As with the highly contested opinion in Kisor v Wilkie, it is clear that many justices are uncomfortable with granting a high level of deference to government agencies. Deference issues continue to be at the forefront of several tax cases and will likely continue to be highly relevant in forthcoming challenges to many regulations in the wake of tax reform in 2017.
The Compliance Assurance Process (CAP) programme was developed to improve large corporate taxpayer compliance with US federal tax obligations. The IRS recently announced that it was accepting applications – for the first time since 2015 – from new corporate taxpayers that meet the CAP programme eligibility requirements. As such, eligible taxpayers interested in the programme for 2020 should prepare and submit an application as soon as possible.
The Internal Revenue Service recently released new informal guidelines regarding Section 965 of the Internal Revenue Code. Among other things, the guidelines contain information on making successive instalment payments, filing transfer agreements as a result of certain acceleration or triggering events and other matters relating to S corporation shareholders making the Section 965(i) election.
The enactment of the Taxpayer First Act brings with it several changes to the procedures and operations of the Internal Revenue Service (IRS). The act touches on (among other things) establishing the IRS Independent Office of Appeals, improving customer service and introducing changes to enforcement. However, it appears that many of the changes to the IRS appeals process are mere guidelines and do not apply to large taxpayers.
The Treasury Inspector General for Tax Administration recently released a report indicating that changes may be in the works regarding the assertion of accuracy-related penalties in examinations handled by the Internal Revenue Service's large business and international division. The report strongly indicates that large business and international examiners and their supervisors will increase their scrutiny of accuracy-related penalty criteria in examinations.
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.
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.
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.
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 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.
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.