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Weekly IRS Roundup November 5 – 9, 2018

by | Nov 13, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 5 – 9, 2018:

November 6, 2018: The IRS added in “Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns” information concerning the filing of transfer agreements under Internal Revenue Code (Code) Section 965(h)(3) and Section 965(i)(2)(c). For our prior coverage related to the election to pay the transition tax under Code Section 965, see here, here and here.

November 7, 2018: The IRS in IRS Tax Tip 2018-173 reminds taxpayers of the blended tax rate as a result of tax reform and provides guidance on the computation of the blended rate.

November 8, 2018: The IRS in a notice announced that the charter for the Internal Revenue Service Advisory Council has been renewed for two years beginning October 17, 2018.

November 9, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Alex Cheng-Yi Lee in our DC office for this week’s roundup.



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Law360: A Look At Tax Code Section 199’s Last Stand

by and | Nov 7, 2018 | , , , , , ,

Andy Roberson, Kevin Spencer and Emily Mussio recently authored an article for Law360 entitled, “A Look At Tax Code Section 199’s Last Stand.” The article discusses the IRS’s contentious history in handling Code Section 199 and the taxpayers’ continued battle to claim the benefit – even after its recent repeal.

Access the full article.

Originally published in Law360, November 2018.



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More Developments on IRS’s Real-Time Audit Program

by and | Oct 2, 2018 | , , , ,

We have previously discussed ongoing developments with the Internal Revenue Service’s (IRS) Compliance Assurance Process (CAP) program. In brief summary, CAP is a real-time audit program that seeks to resolve the tax treatment of all or most return issues before the tax return is filed. The CAP program began in 2005 on an invitation-only basis with 17 taxpayers, and was subsequently expanded to include pre-CAP, CAP and CAP Maintenance components. Taxpayers and IRS leadership generally praised the CAP program as one of the most successful corporate tax enforcement programs, with surveys showing that more than 90 percent of CAP taxpayers reported overall satisfaction with the program.

The fate of CAP has been uncertain in recent years given the IRS’s shift in the examination process to identifying and focusing on specific areas of risk and the continued dwindling of IRS resources. In 2016, we discussed whether this change might result in the death of the CAP program and the IRS’s announcement that it was formally assessing the program. In August of this year, the IRS announced that the CAP program will continue, with some modifications.

At a September 26 conference, the IRS indicated that it wanted to expand the CAP program, but that changes were needed to keep the program sustainable over the long term given issues with increased examination times for CAP audits based primarily on issues involving transfer pricing, research credits under Internal Revenue Code (Code) Section 41, and former Code Section 199. The IRS indicated that it needed to resolve two issues for the CAP program: (1) eligibility and (2) suitability. Regarding eligibility, the IRS indicated that only public companies will likely be allowed into the program. Regarding suitability, factors include: (1) responses to IRS information requests; (2) good-faith efforts to resolve issues; (3) disclosure of tax shelters, material items, investigation or litigation; (4) frequency of claims; and (5) complying with the terms of the program’s memorandum of understanding.

The IRS has also released a Compliance Assurance Process (CAP) Recalibration discussion document, dated September 28, 2018. The discussion document provides more detail on the IRS’s current thinking regarding the CAP program and the two issues identified above. The document indicates that no new applications will be accepted for 2019 but that the IRS expects to accept new application for the 2020 tax year. In addition to general application information, taxpayers with international cross-border activity and research and experimentation activities will be required to submit additional information.

Practice Point: Taxpayers that are currently in the CAP program or that are considering applying to the program should review the IRS’s recent discussion document to identify potential changes to the program and whether the program would be a good fit. For many taxpayers, the CAP program has been—or could be­—a great program for resolving tax disputes in a timely fashion and gaining finality on tax position at an early date. The [...]

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Tax Reform Insight: IRS Slams Door on Refunds/Credits for Taxpayers with Section 965 Transition Tax Liability

by , , and | Aug 21, 2018 | , ,

The Internal Revenue Service (IRS) has issued PMTA 2018-016, reaffirming its position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over eight years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full eight years of installment payments.

The IRS’s position has affected many taxpayers, and practitioners expressed their concerns to the IRS to no avail.

Access the full article.

 



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IRS Is “All Hands on Deck” to Provide Guidance Related to Tax Reform

by and | Jun 20, 2018 | , ,

In the wake of tax reform, taxpayers and practitioners alike are anxious for guidance and clarification on how the new laws impact transactions and reporting positions. The Internal Revenue Service (IRS) has previously stated that implementing tax reform is its highest priority, but that issuing guidance on the entire bill would likely take a substantial amount of time. Since December 2017, the IRS has published a host of notices, revenue procedures and administrative guidance. In some instances, the guidance was mechanical (e.g., Notice 2018-38), and in others it was more substantive (e.g., Notice 2018-28, Notice 2018-18, Rev. Proc. 2018-26).

On May 31, 2018, the IRS announced an “all hands on deck” effort to implement tax reform through 11 groups working closely with the Treasury Department. The IRS originally stated that it did not plan to release any more proposed regulations before the end of the year. Instead, it would issue tax Forms (with instructions) that would need to be filed by taxpayers before the end of the year. On June 7, 2018, the IRS explained that it does plan to issue proposed regulations “covering all major portions” of the bill starting in September and ending in December 2018 (the IRS specifically plans to finalize the temporary aggregation regulations by September to stop them from sunsetting). The IRS reported it is in “very good shape” to meet these deadlines. Additionally, at a recent American Bar Association Section of Taxation meeting, IRS international counsel acknowledged year-end financial reporting for global companies and stated that international tax regulations are intended to be released in the fall instead of the end of the year. Regulations under Internal Code Section 965 are planned for issuance this summer, and other areas of guidance include global intangible low-tax income, also known as the GILTI tax.

(more…)



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Tax Reform Insight: IRS Doubles Down on Retention of 2017 Overpayments to Satisfy Future Section 965 Installment Payments

by , , and | Jun 19, 2018 | , ,

We previously discussed the Internal Revenue Service’s (IRS) surprising position that for taxpayers making an election under Internal Revenue Code (Code) Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments. The IRS’s position has affected many taxpayers, and practitioners have expressed their concerns to the IRS.

On June 4, 2018, the IRS responded to these concerns. Rather than changing its position, the IRS has doubled down; however, the IRS has taken the small but welcome step of allowing some penalty relief for taxpayers affected by the earlier guidance as set forth in new Questions and Answers 15, 16 and 17.

Based on discussions with the IRS, it appears that the IRS’s position is based on the view that it has broad authority under Code Section 6402 to apply overpayments against other taxes owed, and that Code Section 6403 requires an overpayment of an installment payment to be applied against unpaid installments. Thus, the IRS maintains that the Code Section 965 tax liability is simply a part of the tax year 2017 liability, and it is, except for Code Section 965(h) and a timely election thereunder, payable and due by the due date of the 2017 tax return. Any future installments for the Code Section 965 liability are, in the IRS’s view, not part of a tax for a future tax year that has yet to have been determined, as the tax has already been self-assessed by the taxpayer for 2017. Accordingly, the IRS views any overpayments as being applied within the same tax period to the outstanding Code Section 965 tax owed by the taxpayer even though taxpayers making a timely Code Section 965(h) election are not legally required to make additional payments until subsequent years. (more…)



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Taxpayer Bill of Rights | Another Tool for Taxpayers?

by | Mar 13, 2018 | , ,

In 2015, after repeated efforts by Nina E. Olson, the National Taxpayer Advocate, Congress enacted the Taxpayer Bill of Rights (TBOR) in Internal Revenue Code (Code) Section 7803(a)(3). We have previously written about TBOR here, here and here.

Since TBOR was enacted, the IRS has issued information on its website regarding the 10 rights contained in Code Section 7803(a)(3). The IRS provides a summary of these rights. Additionally, the IRS has provided specific information on these rights. To summarize, the 10 rights are:

  1. The right to be informed.
  2. The right to quality services.
  3. The right to pay no more than the correct amount of tax.
  4. The right to challenge the position of the Internal Revenue Service and be heard.
  5. The right to appeal a decision of the Internal Revenue Service in an independent forum.
  6. The right to finality.
  7. The right to privacy.
  8. The right to confidentiality.
  9. The right to retain representation.
  10. The right to a fair and just tax system.

(more…)



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Statutes of Limitation and International Taxes

by and | Mar 8, 2018 | , , , ,

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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How Do You Interpret Terms Used in Statutes?

by | Feb 26, 2018 | ,

Statutes in the Internal Revenue Code (Code), like statutes in other areas of the law, are filled with terms that invite differing interpretations. As a general rule, a statutory term should be given its normal and customary meaning. This might entail resorting to common dictionary definitions from Webster’s or Black’s Law Dictionary. It might also entail looking to the established meaning of the term in the relevant industry. But what if the Code provides a specific definition of a term that varies from the ordinary meaning?

In Digital Realty Trust, Inc. v. Somers, S.Ct. No. 16-1276 (Feb. 21, 2018), the parties disputed the meaning of the term “whistleblower” as set forth in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The statute at issue specifically defined the term “whistleblower” to mean “any individual who provides … information relating to a violation of the securities laws to the [Securities and Exchange] Commission.” The question before the Court was whether the statute extended to an individual who had not reported a violation of the laws to the Commission fell within the definition of a whistleblower.

The Court answered the question in the negative: “‘When a statute includes an explicit definition, we must follow that definition,’ even if it varies from a term’s ordinary meaning. Burgess v. United States, 553 U.S. 124, 130 (2008) (internal quotation marks omitted).” Thus, because the specific definition of “whistleblower” in the relevant statute required providing information to the Commission, an individual who did not do so failed to meet the definitional requirements of the statute.

Practice Point: Taxpayers and their advisors must constantly review and interpret provisions of the Code, including the meaning of specific terms used by Congress. The Supreme Court’s holding in Digital Realty Trust confirms that if a specific definition is provided then it must be followed even if that definition is contrary to the normal and customary meaning or the established meaning in the relevant industry.



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