SubscribeWe recently wrote an article for Law360 on the US Department of Treasury’s policy statement on the tax regulatory process. The Law360 article, “Significant Changes in IRS Regulatory Process Ahead,” can be accessed here.
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Weekly IRS Roundup March 4 – 8, 2019
Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 4 – 8, 2019.
March 4, 2019: The IRS issued proposed regulations under Section 250 of the Code for determining domestic corporations’ deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
March 4, 2019: The IRS issued a news release kicking off the annual list of what the agency terms the most prevalent or “Dirty Dozen” tax scams.
March 5, 2019: The IRS released Notice 2019-18 informing taxpayers that the Treasury Department and the IRS no longer intend to amend the required minimum distribution regulations under § 401(a)(9) of the Internal Revenue Code.
March 6, 2019: The IRS scheduled a public hearing for March 25, 2019, on proposed regulations relating to the Base Erosion and Anti-Abuse Tax.
March 6, 2019: The IRS released Notice 2019-20 providing a waiver of penalties under Sections 6722 and 6698 to certain partnerships for the 2018 tax year.
March 8, 2019: The IRS issued a news release postponing tax return filing and payment deadlines for victims of tornadoes and severe storms in parts of Alabama.
March 9, 2019: The IRS issued a news release advising business owners and self-employed individuals that Publication 5318 contains information of recent tax law changes that might affect their bottom line.
March 9, 2019: The IRS scheduled a March 20 public hearing on proposed regulations on hybrid entities and transactions under section 267A, and scheduled an April 10 public hearing on proposed regulations regarding withholding requirements.
Special thanks to Terence McAllister in our New York office for this week’s roundup.
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International Tax Journal: Code Sec. 956 Proposed Regs
Code Sec. 951(a)(1)(B) requires a US shareholder of a controlled foreign corporation (CFC) to include in its gross income “the amount determined under section 956 with respect to such shareholder for such year….” This amount generally is the shareholder’s pro rata share of the average of the amounts of US property held by the CFC as of the close of each quarter. The amount of the inclusion is reduced by the amount of the CFC’s previously taxed income, and limited by its earnings and profits.
Proposed Code Sec. 956 regulations generally would eliminate this Subpart F inclusion rule for corporate US shareholders, although not in all cases. In those cases where a CFC’s earnings are subject to taxation under Code Sec. 951(a)(1)(B), proposed foreign tax credit regulations would deny deemed paid foreign tax credits for foreign income taxes paid on the CFC’s earnings that are subject to taxation.
Originally published in International Tax Journal, January-February 2019.
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Reasonable Cause for E-Filing Errors?
Tax return filing season is fast approaching, and taxpayers big and small are preparing to file their returns. A recent US Court of Appeals for the Fifth Circuit decision, Haynes v. United States, No. 17-50816 (5th Cir. Jan. 29, 2019), indicates that many of those taxpayers will face uncertainty if their returns are late due to preparer errors or technological issues when electronically filed (e-filed).
The court in Haynes declined to rule on whether the Supreme Court decision in United States v. Boyle, 469 US 241 (1985), applied to e-filing a tax return. The court instead remanded the case to resolve factual issues. In declining to examine the application of Boyle, the decision leaves in place uncertainty for many taxpayers who e-file their returns.
Internal Revenue Code Section 6651(a)(1) excuses a taxpayer from penalties for failure to file a return on time if they show the failure was “due to reasonable cause and not due to willful neglect.” In Boyle, an estate executor hired an experienced lawyer to prepare estate tax returns, but the lawyer failed to put the filing date on the calendar. Nevertheless, the court held that determining a deadline and meeting it did not require any special skills, and therefore relying on an agent was unreasonable. Accordingly, the Court in Boyle did not excuse late filing, and the taxpayer was subject to penalty. (more…)
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Law360: Rules of Construction Provide Framework for Decoding TCJA
Ninth Circuit Interprets Summons Notice Rules Strictly Against IRS
The Internal Revenue Service (IRS) had broad examination authority to determine the correct amount of tax owed by taxpayers. In addition to seeking information directly from a taxpayer, the IRS is also authorized to seek information from third parties. However, Internal Revenue Code (Code) Section 7602(c)(1) requires that the IRS provide “reasonable notice in advance to the taxpayer” before contacting a third party. The US Court of Appeals for the Ninth Circuit recently addressed what constitutes “reasonable notice” for this purpose.
In J.B. v. United States, the taxpayer sought to quash an IRS summons for insufficient notice. The taxpayers were selected for a compliance research examination as part of the IRS’s National Research Program, which involves in-depth audits of random taxpayers to improve the government’s access to compliance information and ensure that the IRS is auditing the right taxpayers. The IRS notified the taxpayers of the audit by mail and enclosed a copy of Publication 1, Your Rights as a Taxpayer. Publication 1 states, in relevant part, that the IRS may sometimes talk to other persons if the taxpayers are unable to provide or verify information received from the taxpayer. In J.B., the IRS summonsed the California Supreme Court for copies of billing statements, invoices and other documents relating to payments to the taxpayer-husband, who was a lawyer who accepted appointments to represent indigent criminal defendants in capital cases. The taxpayers did not learn of the summons until after it had been issued, and therefore moved to quash the summons for insufficient notice. The district court held in favor of the taxpayers.
The Ninth Circuit affirmed, albeit on different grounds. After explaining that “reasonable notice” is a fact-sensitive determination and that advance notice is intended to provide taxpayers the right to avoid potential embarrassment caused by IRS contact with third parties, the court discussed the Internal Revenue Manual and the IRS’s prior practice of providing taxpayer-specific notice. In particular, the predecessor IRS letter had more than 20 iterations tailored to meet different functional requirements. The court ultimately held that the IRS must provide notice “reasonably calculated under all relevant circumstances to apprise interested parties of the possibility that the IRS may contact third parties and that affords interested parties a meaningful opportunity to resolve issues and volunteer information before those third-party contacts are made.”
The Ninth Circuit was particularly troubled by the facts that: (1) the IRS had reason to know that the billing records at issue might have been subject to attorney-client privilege and (2) the taxpayers would have had access to those documents and would have been able to provide redacted copies of the pertinent records. Moreover, the court noted that Publication 1 was “divorced from any specific request for documents.” The court concluded that “[a]lthough we limit our holding to the facts of this case, we are doubtful that Publication 1 alone will ever suffice to provide reasonable notice in advance to the taxpayer, as [...]
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Weekly IRS Roundup February 25 – March 1, 2019
Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 25 – March 1, 2019.
February 25, 2019: The IRS issued Revenue Ruling 2019-05, announcing the interest rates for underpayments and overpayments under section 6621 of the Code, applicable for the calendar quarter beginning April 1, 2019.
February 26, 2019: The IRS issued a news release as part of its new Tax Time Guide series, providing information and online resources to help taxpayers understand the changes made by the Tax Cuts and Jobs Act.
February 27, 2019: The IRS released final regulations amending the utility allowance regulations concerning the low-income housing credit under section 42 of the Code.
February 27, 2019: The IRS issued a news release reminding taxpayers who owe federal taxes about potential restrictions on their ability to obtain or renew passports.
February 27, 2019: The IRS scheduled a public hearing for March 14, 2019, on the proposed regulations implementing the Tax Cuts and Jobs Act as it relates to the foreign tax credit.
February 28, 2019: The IRS issued Notice 2019-17, providing relief from underpayment penalties to farmers and fishermen in certain circumstances.
February 28, 2019: The IRS issued a news release as part of its new Tax Time Guide series, providing information and online resources to taxpayers about how to check refund status or pay additional tax owed.
March 1, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).
Special thanks to Le Chen in our DC office for this week’s roundup.
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NTA Nina Olson Announces Upcoming Retirement
We have written in the past about the Taxpayer Advocate Service (TAS), which is an independent organization within the Internal Revenue Service (IRS) whose job is to ensure that every taxpayer is treated fairly and knows and understands taxpayer rights. For the past 18 years, Nina Olson has been the National Taxpayer Advocate (NTA) – the leader of TAS. Ms. Olson has been instrumental in protecting taxpayer rights, through her Annual Report to Congress and in many other ways. Today, Ms. Olson announced that she is retiring from the position of NTA on July 31, 2019. She will be sorely missed, but we are hopeful that the transition will be smooth and TAS will be able to continue its important work for taxpayers.
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Desmond Confirmed as Next IRS Chief Counsel
By a vote of 84-15 (with one senator not voting), the Senate has finally confirmed Michael Desmond to be the next Chief Counsel of the Internal Revenue Service. Mr. Desmond is highly regarded in the tax community. We wish him well in his new post.
See links below for our prior coverage of Mr. Desmond’s nomination and the role of Chief Counsel.
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Government Files Its Brief in Auer Deference Case
As we discussed in a prior post and in our article for Law360, the Supreme Court is poised to decide in Kisor v. Wilkie whether to overrule the Auer deference doctrine. This doctrine, which originated in the 1945 Seminole Rock case, generally affords controlling deference to an agency’s interpretation of its own ambiguous regulations. To date, the petitioner has filed its brief, several amici have filed briefs and the government has filed its brief (links to these documents can be found here). Argument is currently scheduled for March 27, 2019, and an opinion is anticipated by the end of June 2019.
The government’s brief, filed on February 25, 2019, acknowledges that Auer deference raises serious concerns. Specifically, the government states that the basis for the doctrine is unclear, the doctrine is in tension with the Administrative Procedures Act (APA) and overly broad deference to agency interpretations can have harmful practical consequences. However, relying on principles of stare decisis, the government advocates for maintaining Auer deference subject to certain prerequisites that would limit the doctrine. These prerequisites include applying deference only after all traditional tools of construction have been exhausted and only if the agency’s interpretation has reasonably interpreted any ambiguity. In deciding whether to defer to the agency’s interpretation, a reviewing court should look at whether the interpretation: (1) was issued with fair notice to regulated parties, (2) is not inconsistent with the agency’s prior views, (3) rests on the agency’s expertise and (4) represents the agency’s considered view (i.e., not merely the views of “mere field officials or other low-level employees”). Presumably these limits would curtail the application of Auer deference in circumstances where the agency’s interpretation is first widely known only because of a litigating position.
Practice Point: The Supreme Court’s decision in Kisor v. Wilkie will be important for taxpayers and their representatives in light of the substantial regulatory guidance issued in the wake of tax reform. We will continue to follow this case and provide updates after argument is held and the case is decided.
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