SubscribePartners Alexander Lee, Tim Shuman, Britt Haxton and Jay Singer discuss novel concerns facing CFCs in light of tax reform.
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Tax Takes Video: Issues Facing CFCs
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Tax Reform
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A 360-Degree View: March and April 2018
Wrapping Up March – and Looking Forward to April
Top March Posts You May Have Missed
The IRS May Be Coming for Your Bitcoins
Tax Court Judicial Conference This Week in Chicago
Upcoming Tax Controversy Activities in April
Our lawyers will present on key tax topics during the month of April. We hope to see you soon.
April 24, 2018: Todd Welty, Kristen Hazel, Elizabeth Erickson, John Lutz and Andrew Roberson will present “Taking Reasonable Positions and Retroactive Regulations” at McDermott’s Inaugural Tax Symposium in our Chicago office. The panel will address Gottesman, the ability of IRS to issue retroactive regulations, IRS authority issues, and impacts on return positions.
Led by our senior practitioners, our 2018 Symposium is a must-attend event for senior tax and employee benefits leaders seeking to optimize the opportunities and navigate the risks brought about by tax reform legislation.
April 30, 2018: Thomas Jones will present “Captive Insurance Tax Reform Update” at the Captive Insurance Council of the District of Columbia in Washington, DC. Captive Insurance has undergone a number of changes since the tax reform movement and our partner Tom Jones will cover the new regulations that your organization should be aware of.
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Deference Provided to Regulations When There’s a Drafting Error
The Tax Act created two new foreign tax credit limitation baskets – one for foreign branch income (new section 904(d)(1)(B)) and one for any amount includible in gross income under section 951A (i.e., GILTI) – however, it failed to amend section 904(d)(2)(H)(i) to reflect these changes to section 904(d)(1). As a result of this oversight, section 904(d)(2)(H)(i) currently instructs the taxpayer to treat foreign taxes imposed on amounts that do not constitute income under US principles as imposed on income described in the foreign branch income basket. In light of legislative history and Treasury regulations, such a failure to amend the Code appears to be a drafting error. This article addresses the relevant case law that, on balance, supports applying section 904(d)(2)(H)(i) as if its language and cross-reference had been properly amended.
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IRS Funding Woes Realized? Audit Rate at 15-Year Low!
A shrinking Internal Revenue Budget (IRS) budget has meant that fewer agents are available to make sure that the tax laws are being enforced. We have reported previously about how Congress has decreased the IRS’s budget. In 2017, the audit rate fell to its lowest levels in 15 years because of a shrinking IRS budget and workforce. Indeed, your chance of being audited fell to 0.6% in 2017, the lowest rate since 2002. Similarly, tax collection levies fell 32% from the prior year, and the IRS filed 5% fewer liens year-over-year. Detailed information from the IRS can be found here.
Practice Point. The decreased funding of the IRS in the wake of bipartisan disagreements seems to have quelled in recent weeks. We have seen 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 the enforcement functions of the IRS. We anticipate, however, an increase in enforcement activity as a result of some of the positions taken by taxpayers in anticipation of tax reform and the myriad of interpretive questions that are expected to result from the new tax laws.
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Federal Tax Reform Reaches the States
As the Tax Cuts and Jobs Act (TCJA) has rolled out at the federal level, its impacts have been felt widely in the field of state and local taxation. McDermott’s Inside Salt blog has published a series of posts over the last few months addressing the different effects of the TCJA at the state level throughout the country, which can be found here. This week, Inside Salt addresses TCJA’s effects in New York, Idaho, Iowa and Minnesota.
For McDermott’s comprehensive insights into federal tax reform, please visit our federal tax reform website.
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Tax Takes Video: Should I Convert My Entity?
In the below Tax Takes Video, Dan Zucker and Alexander Lee discuss the pros and cons of converting your entity from an S corp to a C corp.
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Are LB&I’s Campaigns Stuck in the Trenches?
In January 2017, the Internal Revenue Service (IRS) Large Business & International (LB&I) Division released its announcement related to the identification and selection of its campaigns. The primary purpose of the campaigns was to end the resource intensive continuous audit program (where the LB&I audits a large taxpayer year after year for decades) and a move to an issue focused coordinated approach. LB&I originally identified 13 campaign issues and in November 2017, identified 11 additional campaigns and on March 13, 2018, identified 5 additional campaigns. We have extensively discussed LB&I’s campaign examination process including posts on Understanding LB&I “Campaigns”, Run for Cover – IRS Unveils Initial “Campaigns” for Audit, IRS Continues to Barrage Taxpayers with New Campaigns.
At the March 9 meeting of the Federal Bar Association Section on Taxation, an LB&I executive indicated that the rollout of the campaigns may have hit a snag. John Hinding, Director of Cross Border Activities at LB&I, reported that “the campaign work is still a minority of our work,” and its implementation has been slow going. According to Hinding, “A lot of the issue spotting that we’d like to do is driven by data analysis, and changes to systems to allow that is a lengthy process to get in place.” (more…)
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Statutes of Limitation and International Taxes
In late 2017, we provided a brief overview of statutes of limitation in the international tax context. At that time, we noted a forthcoming article on the subject. We are pleased to report that our expanded article on the subject has been published in the January-February 2018 edition of the International Tax Journal. The full article can be viewed here.
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Expansion of Subpart F under the Tax Reform Act
Under Subpart F, certain types of income and investments of earnings of a foreign corporation controlled by US shareholders (controlled foreign corporation, or CFC) are deemed distributed to the US shareholders and subject to current taxation. The recent tax reform legislation (Public Law No. 115-97) increased the amount of CFC income currently taxable to US shareholders, and expanded the CFC ownership rules, which means more foreign corporations are treated as CFCs.
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Expect Controversy in the Wake of Tax Reform
Tax reform is here to stay (at least for the foreseeable future). The Internal Revenue Service (IRS) may receive additional funds to implement the new tax law. With lowered tax rates, accelerated expensing and forced repatriation of foreign earnings comes an increased risk of an IRS audit. This brave new tax world has left so many questions that tax advisors’ phones have been ringing off the hooks! But as the end of the 2017 year and first quarter of 2018 dust settles, be mindful of the IRS audit to come. (more…)
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