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 US District Court for the Northern District of Texas recently ruled in favour of Exxon Mobil Corporation in its battle against the government over tax penalties. Exxon had filed amended returns for its 2006 to 2009 tax years seeking a $1.35 billion tax refund based on a change of character of certain transactions. The government disallowed the refund claims and imposed a $200 million penalty pursuant to Section 6676 of the Internal Revenue Code. Exxon paid the penalty and filed suit for a refund.
A troubling New Jersey financial transaction tax proposal, which appeared to be gaining popularity over the past few months, has reportedly been left out of the 2021 budget deal that Governor Phil Murphy recently struck with legislative leaders. The decision to drop the transaction tax from the deal came days after the Wall Street Journal reported that prominent stock exchanges with data centres in New Jersey were prepared to exit the state if the tax plan was adopted.
The Internal Revenue Service recently issued proposed regulations under Section 1061, a provision enacted as part of the Tax Cuts and Jobs Act 2017 that recharacterises certain net long-term capital gain with respect to applicable partnership interests as short-term capital gain. The proposed regulations provide clarity on some of the statutory provisions. This article discusses some of the noteworthy provisions in the proposed regulations.
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 concerning bill is pending in the California Senate which would require the California state controller's office to make taxpayer information publicly available. The bill would require that the controller post on its website a list of all taxpayers subject to the California corporation tax with gross receipts of $5 billion or more and information about each taxpayer, including tax liability and the amount of tax credits claimed in the previous calendar year.
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 New York General Assembly recently introduced Assembly Bill A9112. An identical New York Senate companion bill has been referred to the New York Senate Committee on Budget and Revenues, after being introduced in May 2019. The bills would impose an additional 5% tax on the gross income of every corporation with data-derived income from New York customers, but provide no further details or limitation on the scope of the proposed new imposition language.
The Illinois Department of Revenue has begun a new amnesty programme, which is running from 1 October 2019 to 15 November 2019. All taxes paid to the Illinois Department of Revenue for taxable periods ending after 30 June 2011 and before 1 July 2018 are eligible for amnesty with relief from penalties and interest. In light of the phase-out of the corporate franchise tax by 1 January 2024 (enacted by Public Act 101-9), participants in the amnesty programme should proceed with extreme caution.
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.
Legislators in Sacramento are mulling over one of the most (if not the most) troubling state and local tax bills of the past decade. AB 1270, which was recently introduced and passed by the California Assembly in May 2019, would amend the California False Claims Act to remove the 'tax bar' – a prohibition that exists in the federal False Claims Act and the vast majority of states with similar laws.
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.
A Wisconsin governor recently signed into law an act that either bars a reduction for, or requires amounts deducted to be added back to, Wisconsin taxable income for moving expenses deducted on federal income tax returns if the expenses are associated with a business moving out of the state or country. However, the act blatantly discriminates against interstate and international commerce and is unconstitutional.
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.
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.
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.
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.