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IRS Releases International Tax Guidance

by | Jan 4, 2018 | , ,

Happy New Year to all our readers! To start off the New Year, the Internal Revenue Service (IRS) has released two pieces of guidance on international tax issues which are noteworthy. Each is briefly discussed below.

The first piece of guidance is Notice 2018-7, which announces the IRS’s intent to issue regulations for determining amounts included in gross income by a United States shareholder under Internal Revenue Code (Code) Section 951(a)(1) by reason of Code Section 965. The IRS has requested comments on the Notice and has indicated that it expects to issue additional guidance under Code Section 965.

The second piece of guidance is a Practice Unit on the substantial contribution test for the controlled manufacturing exception under the Code Section 954 regulations. This Practice Unit discusses the substantial contribution test and provides insight into the IRS’s approach in analyzing this issue in examinations of taxpayers. We previously posted about the purpose of Practice Units here, but to briefly recap this type of guidance is intended as job aids and training materials for IRS employees. A complete list of Practice Units can be found here.



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E-Filing: Comments Provided to IRS Regarding Transmission Failures

by | Dec 26, 2017 | ,

As taxpayers are (or should be) aware, federal income tax returns must be timely filed to avoid potential penalties under Internal Revenue Code (Code) Section 6651. Historically, this meant mailing a tax return and, for returns filed close to the due date, ensuring that the “timely mailed, timely filed rule” applies (see here for our recent post on the “mailbox rule”). In recent years, there has been a push to electronically file tax returns with the Internal Revenue Service (IRS). However, for one reason or another, the potential exists that an e-filed return may be rejected. (more…)



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IRS Required to Obtain Supervisory Approval to Assert Penalties

by and | Dec 21, 2017 | , , , ,

We have written several times about penalty defenses, including substantial authority, issues of first impression and tax reporting disclosures. Additionally, we previously covered  the 2016 case of Graev v. Commissioner, where a divided US Tax Court (Tax Court) held that supervisory approval was not necessary before determining a penalty in a deficiency proceeding because the statutory language of Internal Revenue Code (Code) Section 6751(b)(1) couched such approval in terms of a proposed penalty assessment. For those not well-versed in procedural tax lingo, an “assessment” is merely the formal recording of a tax liability in the records of the Internal Revenue Service (IRS). In cases subject to the deficiency procedures—i.e., where taxpayers have a right to contest the IRS’s position in the Tax Court—no assessment can be made until after the Tax Court’s decision is final. (more…)



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Prepare for Examination Season

by and | Dec 20, 2017 | , , ,

The tax bar is abuzz with the talk of tax reform. Clients are in modeling purgatory, trying to calculate its effects and plan for the future. Public accounting firms are suggesting how to accelerate deductions in 2017 to take advantage of the massive tax rate decline in 2018. Now more than ever, there are substantial economic incentives to accelerate deductions in 2017 and defer income until 2018. Yes, it’s beginning to look a lot like Christmas and the end to what bodes to be a historic year for federal tax!

Not to be a Grinch, but consider the following as you prepare for year end. If you attempt to accelerate any deductions, make sure to have a complete, “audit-ready” file if the Internal Revenue Service (IRS) decides to test your position. Consider how you will protect against the assertion of any penalties; typically, your ticket to get of out penalty “prison” is to maintain proper substantiation and to establish a reasonable cause defense. An opinion of counsel is one method to meet your burden of establishing that defense. It is always better to be proactive and anticipate an IRS audit than to be reactive and try to compile the proper documentation after-the-fact.



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Tax Reform Conference Committee Reaches Agreement

by , , , and | Dec 18, 2017 | , ,

A House-Senate conference committee has reached agreement on a compromise version of the Tax Cuts and Jobs Act, which includes substantial changes to the corporate and international business taxation rules. The stage now appears to be set for final passage and enactment of the legislation before the end of 2017.

Continue Reading.



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Maintaining Confidentiality While Navigating Cross-Border Transactions

by and | Dec 14, 2017 | , , ,

Today, taxing authorities across the globe, including the Internal Revenue Service (IRS), are increasing their efforts to gather and share sensitive taxpayer information, often aggressively seeking copies of tax advice, opinions and analysis prepared by counsel and other advisors. In some situations, tax advisors specifically draft their advice to be shared with third parties, but frequently the IRS seeks advice that was always intended to be confidential client communications—for example, drafts and emails containing unfinished analysis and unguarded commentary. Sharing this latter type of advice could be problematic for taxpayers because such advice could be used as a road map for examiners during an audit and may mislead the IRS regarding the strength or weakness of a taxpayer’s reporting positions.

Last month, we spoke to tax executives at Tax Executives Institute forums in Houston and Chicago about the IRS’s increased use of treaty requests to obtain US taxpayers’ documents and information from international tax authorities. (more…)



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Tax Court: Mailbox Rule Can Apply with Stamps.com Postage Label

by and | Dec 5, 2017 | , , ,

Within the Internal Revenue Code (Code) is a rule commonly known as the “mailbox rule” or the “timely mailed, timely filed rule.” Under Code Section 7502(b), the date that an item—including a Tax Court petition—is postmarked and mailed can also be the date the item is considered filed. When an item is received after the filing deadline, the mailbox rule can make all the difference. There are, however, procedural requirements which must be satisfied. In Pearson v. Commissioner, the Tax Court, in a court-reviewed opinion, held that a Tax Court petition mailed with a Stamps.com postage label was timely filed under the mailbox rule.

Taxpayers generally have 90 days to file a petition with the Tax Court after receiving a notice of deficiency. In Pearson, the Tax Court received the taxpayers’ petition one week after the 90-day period expired, but the envelope in which the petition was mailed bore a Stamps.com postage label dated within the 90-day period. The administrative assistant who created the Stamps.com postage label supplied the court with a declaration under penalty of perjury stating that she went to a US Post Office the same day as the postage label date and mailed the petition. (more…)



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Government Appeals Defeat in Anti-Inversion Regulation Case

by | Nov 29, 2017 | , , ,

We previously posted on the Order by the US District Court for the Western District of Texas in Chamber of Commerce of the United States of America, et al. v. Internal Revenue Service, Dkt. No. 1:16-CV-944-LY (W.D. Tex. Sept. 29, 2017). In that Order, the court held that Treas. Reg. § 1.7874-8T was unlawfully issued.  See here for our prior post.  As expected by many, the government on November 27, 2017, appealed the Order to the Court of Appeals for the Fifth Circuit. The next steps are for the Fifth Circuit to set a briefing schedule and a date for oral argument. We will continue to follow this case and provide updates.



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Facebook Goes to District Court to Enforce Access to IRS Appeals

by and | Nov 13, 2017 | , , ,

On November 8, 2017, Facebook, Inc. and Subsidiaries (Facebook) filed a complaint in the District Court for the Northern District of California asserting that the Internal Revenue Service (IRS) had improperly denied Facebook access to Internal Revenue Service (IRS) Appeals. Facebook’s complaint seeks a declaratory judgment that the IRS unlawfully issued Revenue Procedure 2016-22, 2016-15 I.R.B. 1, and unlawfully denied Facebook its statutory right to access an independent administrative forum. Facebook also requests injunctive relief from the IRS’s unlawful position, or action in the nature of mandamus to compel the IRS to provide Facebook access to an independent administrative forum. (more…)



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