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McDermott’s Real-Time Tax Disputes Insights
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Deference Provided to Regulations When There’s a Drafting Error

by and | Apr 4, 2018 | ,

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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Are Changes Looming over the Tax Court’s Procedure Rules?

by and | Apr 3, 2018 | , ,

Tax controversy practitioners are undoubtedly aware of the gradual movement over the years to conform certain Tax Court procedure rules (Tax Court Rules) to those of the Federal Rules of Civil Procedure. In many ways, this makes sense to ensure uniformity of tax cases regardless of whether a taxpayer litigates his tax dispute in a refund forum in the US District Court or the US Court of Federal Claims, or prior to payment of tax in the Tax Court. Below we note a few important areas of divergence between the different rules, and point out situations where the Tax Court Rules do not address a particular matter. These matters were discussed at the recent Tax Court Judicial Conference held in Chicago last week.

Amicus Briefs

As we have discussed before, amicus briefs are not uncommon in other courts. However, the Tax Court does not have specific rules on the topic and, instead, permits each judge to decide a case-by-case basis whether to permit the filing of an amicus brief. Although the Tax Court has discussed standards for filing amicus briefs in unpublished orders, given the nationwide importance of many issues that arise in Tax Court litigation, it may be time for the court to issue specific rules addressing the issue. (more…)



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IRS Funding Woes Realized? Audit Rate at 15-Year Low!

by and | Mar 30, 2018 | , , , , ,

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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New Proposed Regulations Limit Use of Non-Government Attorneys

by | Mar 29, 2018 | , ,

On March 28, 2018, the Treasury Department and Internal Revenue Service (IRS) published Proposed Regulation § 301.7601-1(b)(3)(i) and (ii) which permits the IRS to hire outside specialists to assist in determining the correctness of a taxpayer’s tax liability. The Proposed Regulation also contains an exception specifically prohibiting the IRS from hiring outside attorneys to review summoned information or question witnesses providing testimony under oath.

The participation of outside attorneys became controversial during the audit of a large technology company when the IRS hired an outside law firm to augment its own resources for the transfer pricing audit of the company. On October 16, 2017, in response to the requirements of Executive Order 13789, requiring the Secretary of the Treasury to review all regulations issued after January 1, 2016, the Treasury Department and the IRS announced that they were considering proposing an amendment to Treas. Reg. § 301.7602-1(b)(3) in order to narrow the scope with respect to non-government attorneys. See our prior coverage here. (more…)



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Tax Court Judicial Conference This Week in Chicago

by | Mar 26, 2018 |

The Tax Court’s 2018 Judicial Conference starts tomorrow morning on the campus of Northwestern University’s Pritzker School of Law. For prior coverage, see here. The many panels taking place tomorrow and Wednesday include:

  • Mediation in the Tax Court
  • Discovery and Stipulations Process
  • Litigating Individual Cases
  • Large Case Litigation
  • Whistleblower Jurisdiction
  • A Trip Through the Tax Court’s Exotic Jurisdictions
  • Ethical Issues in Representing Clients
  • The Future of Tax Court Practice and Litigation

I will be participating on the Discovery and Stipulations Process panel along with Tax Court Judges Kathleen Kerrigan and Joseph Goeke, Peter Reilley (Special Counsel IRS), and Jenny Johnson Ware (Johnson Moore).



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The Fifth Circuit Puts an End to the Madness with its March Opinion

by and | Mar 21, 2018 | , , ,

We have all heard the famous quote about doing the same thing over and over again and expecting different results. The Court of Appeals for the Fifth Circuit applied this concept in its March 8 opinion in Annamalai v. Comm’r, No. 17-60255. There, the issue was whether the taxpayers could extend into perpetuity the 90-day deadline to file an appeal by filing successive motions to vacate a Tax Court decision. Under the facts presented, the answer was no.

Taxpayers have 90 days after a decision of the Tax Court to file an appeal. If a party makes a timely motion to vacate or revise the Tax Court’s decision, the 90 days runs from the later of either entry of the order disposing the motion or entry of a new decision.

In Annamalai, the taxpayers filed successive motions to vacate a Tax Court decision. After the Tax Court entered a final decision in favor of the government, the taxpayers unsuccessfully moved to vacate the decision. Rather than filing a notice of appeal within 90 days after the denial, the taxpayers filed another motion to vacate that did not raise any substantially new grounds or arguments. After the Tax Court denied the second motion, the taxpayers filed the notice of appeal. The notice of appeal was filed 117 days after the ruling on the first motion and 83 days after the ruling on the second motion.

The Fifth Circuit dismissed the taxpayers’ appeal, which it noted involved a jurisdictional issue of first impression. The court agreed with the general principle that tolling motions may not be tacked together to perpetuate the prescribed time for appeal. As such, the 90-day period ran from the ruling on the first motion, and the appeal was thereby untimely and dismissed.

The Fifth Circuit declined to address the issue of whether a second motion to vacate on substantially different grounds and new arguments would be acceptable. The court noted that it is acceptable in the civil context, suggesting it may be permitted.

Practice Point: Absent intervening events such as new case law directly on point, motions to vacate or reconsider are rarely granted in tax cases. Indeed, filing a motion to vacate or reconsider may provide an opportunity for the court to bolster its prior opinion and lessen the chances of success on appeal. In a situation where a motion to vacate or reconsider is pursued, taxpayers should take care to ensure that all arguments supporting such a motion are properly placed before the court and that an appeal is filed within the statutory-prescribed period if the motion is denied.



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Federal Tax Reform Reaches the States

by | Mar 20, 2018 | ,

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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IRS OVDP Ending | Time Is Now for Coming into US Tax Compliance – Especially for Those with Willfulness Issues

by , and | Mar 16, 2018 | , , , ,

On March 13, 2018, the Internal Revenue Service (IRS) announced that it will begin ramping down the current Offshore Voluntary Disclosure Program (OVDP) and urged taxpayers with undisclosed foreign assets to apply for the program prior to its close on September 28, 2018. We have previously reported on developments in the OVDP.

Access the full article. 



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Law360: US District Court To French Tax Authorities: Pas De Probleme

by and | Mar 15, 2018 | , , ,

Robin Greenhouse and Kevin Spencer recently authored, “US District Court To French Tax Authorities: Pas De Probleme” for Law360. The article discusses a case involving IRS summons and taxpayers’ rights in context of the US-France Treaty.

Read the full coverage on Law360.



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