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McDermott’s Real-Time Tax Disputes Insights
TAX CONTROVERSY 360
McDermott’s Real-Time Tax Disputes Insights
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ABA Recommends Allowing Limited Representation Before the Tax Court

by | Oct 4, 2018 | , ,

Last May, the US Tax Court (Tax Court) announced that approximately 70 percent of all taxpayers in Tax Court cases and approximately 90 percent of taxpayers in small tax cases are self-represented. The Tax Court encourages assistance by pro bono attorneys at its calendar calls, and strives to provide information to taxpayers about how they may be able to connect with those attorneys (more background on the Tax Court’s efforts can be found here). Although pro bono attorneys appear at Tax Court calendar calls to assist self-represented taxpayers, ethical rules may limit the ability of these attorneys to provide certain kinds of legal assistance. For example, once an attorney makes an appearance in a court case, typically the attorney cannot simply withdraw and stop representing the client. The attorney may have to get both the client’s and court’s consent to withdraw from the representation. The inability to provide legal advice for one or more occasions without potentially being stuck on a case is perceived to dissuade many practitioners from providing pro bono service.

In response to these concerns, the American Bar Association (ABA) Section of Taxation recently provided comments to the Tax Court regarding potential amendments to its rules relating to appearance and representation before the Tax Court. The ABA comments encourage the Tax Court to consider a limited appearance rule for pro bono attorneys appearing at the calendar call. This one-time appearance representation may encourage more attorneys to get involved in providing pro bono legal assistance to taxpayers. We will provide an update on any future action that the Tax Court may take in this regard.

Links to McDermott posts and articles about tax pro bono efforts by volunteer attorneys are listed below:

 



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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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Weekly IRS Roundup September 3 – 7, 2018

by | Sep 11, 2018 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 3 – 7, 2018:

September 4, 2018: The IRS reminded taxpayers that they have until September 28, 2018, to apply for the Offshore Voluntary Disclosure Program.

September 5, 2018: In response to taxpayer inquiries, the IRS clarified that taxpayers generally can deduct business-related payments to charities or governmental entities even if they also receive a state or local tax credit.

September 6, 2018: The IRS released a Practice Unit on “Determining an Individual’s Residency for Treaty Purposes.”

September 6, 2018: The IRS published Revenue Procedure 2018-47, which provides guidance to regulated investment companies regarding the application of the section 4982 excise tax to amounts included in income under the new Internal Revenue Code (Code) Section 965 transition tax.

September 7, 2018: The IRS published Revenue Ruling 2018-25, establishing the interest rates applicable to over- and under-payments of tax.

September 7, 2018: The IRS released PMTA 2018-016, concluding that it can use it math error authority, not only on intake and before refunds have been issued, but also anytime within the three-year statute of limitations period under Code Section 6501(a).

September 7, 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 Kevin Hall in our DC office for this week’s roundup.



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OVDP Ending September 28: Now Is the Time to Disclose

by | Aug 23, 2018 | , , ,

Earlier this year, the Internal Revenue Service (IRS) announced the ending of the 2014 Offshore Voluntary Disclosure Program (OVDP), its formal amnesty program for taxpayers with previously undisclosed interests in foreign assets and financial accounts. The program deadline is September 28, 2018, and all submissions must be substantially completed by that deadline. Partial or “placeholder” submissions will not qualify. All requests for preclearance into the program must be submitted by Friday, August 24, 2018.

A number of other disclosure options will remain available after September 28, 2018, including the popular IRS streamlined compliance procedures. Regardless, taxpayers with potential questions or concerns regarding reporting of their foreign holdings should seek advice immediately in light of upcoming deadlines.



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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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Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

by and | Aug 6, 2018 | , , , ,

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs).

We have reported on the Alta Wind case several times in the past two years:

Government Appeal of Alta Wind Supports Decision to File Suit Now

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Act Now To Preserve Your Section 1603 Grant

SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

In reversing the trial court, the appellate court failed to answer the substantive question of whether a PPA that is part of the sale of a renewable energy facility is creditable for purposes of the Section 1603 cash grant.

Trial Court Decision

The Court of Federal Claims awarded the plaintiff damages of more than $206 million with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). The court held that the government had underpaid the plaintiff its Section 1603 Grants arising from the development and purchase of large wind facilities when it refused to include the value of certain PPAs in the plaintiffs’ eligible basis for the cash grants. The trial court rejected the government’s argument that the plaintiffs’ basis was limited solely to development and construction costs. Instead, the court agreed with the plaintiffs that the arm’s-length purchase price of the projects prior to their placed-in-service date informed the projects’ creditable value. The court also determined that the PPAs specific to the wind facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This meant that any value associated with the PPAs would be creditable for purposes of the Section 1603 Grant.

Federal Circuit Reverses and Remands 

The government appealed its loss to the Federal Circuit. In its opinion, the Federal Circuit reversed the trial court’s decision, and remanded the case back to the trial court with instructions. The Federal Circuit held that the purchase of the wind facilities should be properly treated as “applicable asset acquisitions” for purposes of Internal Revenue Code (IRC) section 1060, and the purchase prices must be allocated using the so-called “residual method.” The residual method requires a taxpayer to allocate the purchase price among seven categories. The purpose of the allocation is to discern what amount of a purchase price should be ascribed to each category of assets, which may have significance for other parts of the IRC. For example, if the purchase price includes depreciable [...]

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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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IRS Releases Practice Unit on Statutes of Limitation

by and | Apr 13, 2018 | ,

The expiration of the time for the Internal Revenue Service (IRS) to assess tax can bring closure on prior tax and financial reporting positions for taxpayers. We have previously reported and written for the International Tax Journal about tax statutes of limitation both generally and in the international tax context. As a follow-up to those materials, we wanted to alert you that the IRS recently released a Practice Unit providing an overview of statutes of limitation on the assessment of tax. These materials are all good resources and starting points for taxpayers and practitioners with questions on statutes of limitation.



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More Changes to IRS Appeals’ Practices?

by and | Mar 12, 2018 | , ,

We have previously commented on changes at the Internal Revenue Service (IRS) Appeals Division, including: (1) the allowance of Appeals to invite representatives from the IRS Examination Division (Exam) and IRS Office of Chief Counsel to the Appeals conference, (2) the limitations on in-person conferences, and (3) the use of “virtual” conferences.

IRS Appeals Chief Donna Hansberry discussed these changes at a recent tax law conference held by the Federal Bar Association. According to reports, Ms. Hansberry wants feedback from practitioners on the compliance attendance and virtual conferences. (more…)



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Natural Disasters and Tax Law

by | Nov 20, 2017 |

Following up on our pro bono post last week, we wanted to highlight a recent article in the ABA Tax Times regarding tax impacts of natural disasters. The article discusses resources available to taxpayers and volunteers dealing with the after-effects of a natural disaster and emphasizes the need for tax assistance long-after the natural disaster occurs. If you have a few moments and/or are interested in ways you might be able to help, please take a quick look.



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