corporate taxpayers Archives - TAX CONTROVERSY 360

IRS Finalizes New Schedule UTP and UTP Instructions

by Kevin Spencer and McDermott Will & Emery | Dec 23, 2022 | IRS Guidance, Tax Refunds

On December 22, 2022, the Internal Revenue Service (IRS) finalized changes to Schedule UTP, Uncertain Tax Position Statement, and Instructions for Schedule UTP. Proposed changes to Schedule UTP and the UTP Instructions were announced on October 11, 2022, with comments requested by November 18, 2022. Our prior coverage of the proposed changes and comments can be found here and here.

Several comments were submitted in response to the proposed changes, expressing significant concerns regarding privilege issues, the increase in information required to be disclosed and uncertainty surrounding penalty protection. We submitted our own comments, which focused primarily on the IRS’s proposal to require taxpayers to identify all “contrary authorities” to a position identified on Schedule UTP, including nonprecedential and unpublished guidance.

The final Schedule UTP and UTP Instructions removed the requirement to identify nonprecedential and unpublished guidance. The UTP Instructions also modified the language regarding what is needed for the concise description of the issue to focus more on the facts involved. Finally, the IRS confirmed that the amount of any reserve need not be disclosed, but rather just the amount listed on the line to which the uncertain tax position relates. These are welcome developments for taxpayers and should alleviate some of the concerns expressed by commentators. However, the IRS has not indicated what impact these final changes will have on its “policy of restraint” to seek accrual work papers.

Practice Point: Corporate taxpayers with uncertain tax positions now have a final form and final instructions to use for their 2022 tax reporting. They should review the finalized changes and determine the best approach to ensure compliance with these changes.

Update on IRS Enforcement Efforts

by Kevin Spencer and McDermott Will & Emery | Nov 16, 2022 | IRS Audits, IRS Guidance, Tax Reform, Transfer Pricing Resource

We frequently post about the Internal Revenue Service’s (IRS) tax enforcement trends and announcements. Prior examples from this year include the release of a five-year strategic plan emphasizing enforcement, the plan to hire up to 200 additional attorneys to assist with litigation efforts, the implementation of the Large Partnership Compliance (LPC) Pilot Program, a focus on tax compliance of non-US citizens and residents, and the creation of a new Joint Strategic Emerging Issues Team to identify emerging “abusive transactions.” Over the past several weeks, the IRS has provided additional updates on its enforcement efforts and future plans, including the following:

The IRS is considering raising the economic substance doctrine more frequently in transfer pricing examinations—even those where taxpayers have transfer pricing documentation—and asserting penalties more often in transfer pricing cases. This follows the announcement last April that executive approval is no longer needed before asserting the codified economic substance doctrine under Internal Revenue Code Section 7701(o).

The IRS plans to grow the LPC program and envisions it functioning similar to corporate examinations conducted by the Large Business & International Division.

The IRS’s Criminal Investigation (CI) Division is highly focused on criminal digital asset cases and intends to make many of these cases public. This follows the recent release of the CI Division’s annual report.

The IRS intends to expend more resources on examinations of high-income/high-net-worth taxpayers.

The IRS has proposed to require the disclosure of more information regarding corporate taxpayers’ uncertain tax positions, including citations to contrary authorities, which, if finalized, will likely lead to more examinations and challenges to tax reporting positions.

Practice Point: Tax enforcement has been down over the past several years, including a slowdown in audit operations during the COVID-19 pandemic. With increased funding from the Inflation Reduction Act of 2022 and proposed restrictions on access to IRS Appeals for certain matters, we expect more examinations and tax disputes in the near future. Taxpayers and their advisors should prepare. Consider working with your tax controversy advisor to discuss your more vulnerable return positions to see how to better defend against the impending tax enforcement wave!

Show Me the Money: IRS Introduces Webpage for Large Refunds Subject to JCT Review

by Kevin Spencer and McDermott Will & Emery | Sep 23, 2021 | IRS Audits, IRS Guidance, Tax Refunds

When we previously wrote about the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS), we explained that the IRS generally must submit proposed refunds in excess of $5 million for corporate taxpayers and $2 million for all other taxpayers to the JCT before any such refunds can be paid. However, getting through the JCT review process can be difficult and time-consuming in some situations—and sometimes taxpayers are left in the dark.

On September 22, 2021, the IRS announced the launch of its new webpage that provides information to taxpayers whose large refunds are subject to JCT review. Topics covered include general information about how a JCT review matter arises and how the IRS handles a JCT review case.

Practice Point: The IRS’s new webpage provides a helpful general overview of the JCT review process but does not provide any new information on it. A more detailed discussion of the JCT review process can be found in our prior post and in the JCT’s 2019 process overview.