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.

As we have written about before, there is a substantial need for pro bono assistance to low-income taxpayers throughout the country. A sample of some of the tremendous results obtained by pro bono volunteers can be found here. As strong proponents of pro bono, both in tax law and other areas of the law, we have seen firsthand the difference that a few hours of your time can make in the life of an individual that cannot otherwise afford to pay for legal representation.

The American Bar Association (ABA) Section of Taxation annually selects one individual or law firm as the recipient of the Janet Spragens Pro Bono Award. The award was established in 2012 to recognize outstanding and sustained achievements in pro bono activities in tax law. The ABA is seeking nominations for the 2018 recipient, which must be submitted by December 8, 2017. More information about the criteria for selection and a list of prior recipients can be found here. If you know of an individual or a law firm that would be a worthy nominee, please do not hesitate to submit your nomination to the ABA Section of Taxation. We note that all nominations are maintained in strict confidence by the Pro Bono Award Committee.

In light of the massive leak of the Appleby files this weekend (i.e., the “Paradise Papers” leak), it is increasingly important for US taxpayers to know the rules regarding reporting of their offshore financial accounts and assets. We have previously written on this subject here.

The latest document release from the International Consortium of Investigative Journalists includes over 13.4 million files spanning a time period of more than 60-years, including a large cache from the Bermudan law firm, Appleby, and a fiduciary service provider, Estera. According to news reports, covered jurisdictions include Antigua and Barbuda, Aruba, the Bahamas, Barbados, Bermuda, the Cayman Islands, the Cook Islands, Dominica, Grenada, Lebanon, Malta, the Marshall Islands, St. Kitts and Nevis, St. Lucia, St. Vincent, Samoa, Trinidad and Tobago, and Vanuatu.

Practice Point: Voluntary disclosure to the Internal Revenue Service may still be an option for affected individuals and entities; therefore, all options should be considered when evaluating the consequences of this leak.

On November 3, 2017, the Internal Revenue Service (IRS) Large Business and International (LB&I) division identified 11 new examination compliance “campaigns.” We have extensively discussed LB&I’s “campaign” examination process, including posts on Understanding LB&I “Campaigns” and Run for Cover – IRS Unveils Initial “Campaigns” for LB&I Audits.

The IRS identified the 11 new campaigns “through LB&I data analysis and suggestions from IRS compliance employees.” The new campaigns are:

  • Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign
  • Swiss Bank Program Campaign
  • Foreign Earned Income Exclusion Campaign
  • Verification of Form 1042-S Credit Claimed on Form 1040NR
  • Agricultural Chemicals Security Credit Campaign
  • Deferral of Cancellation of Indebtedness Income Campaign
  • Energy Efficient Commercial Building Property Campaign
  • Corporate Direct (Section 901) Foreign Tax Credit
  • Section 956 Avoidance
  • Economic Development Incentives Campaign
  • Individual Foreign Tax Credit (Form 1116)

Practice Point:  The IRS’s salvo represents the “second wave” of LB&I’s issue-focused compliance work.  Indeed, the IRS noted that “[m]ore campaigns will continue to be identified, approved and launched in the coming months.” It is clear that the IRS is focusing its resources on these campaigns, and has developed significant internal expertise on these issues. If you have one of the identified issues, consider being proactive and preparing an audit ready-file as the issue will likely be examined.

Today, President Trump announced his intention to designate David Kautter to be the Acting Commissioner of Internal Revenue effective November 13, 2017. John Koskinen, the current Commissioner of Internal Revenue, is near the end of his term, which ends on November 12, 2017. The Commissioner’s role is to preside over the nation’s tax system and manage an agency consisting of more than 80,000 employees with a budget in excess of $11 billion.

Mr. Kautter has been the Assistant Secretary of the Treasury (Tax Policy) since August 2017. Prior to that, he was the Leader of the Washington National Tax practice at RSM US LLP. From 2011–2015, he was a Managing Director at American University, Kogod School of Business. From 1974–1979 and 1982–2010, he worked in a variety of roles with EY, ranging from compensation and benefits issues to domestic and international tax issues. From 1979–1982, he was Tax Legislative Counsel for former Senator John Danforth. Mr. Kautter graduated with a bachelor’s degree in Business Administration from the University of Notre Dame and obtained his law degree from Georgetown University. His LinkedIn profile can be viewed here.

Recently, the Legal 500 US 2017 ranked McDermott’s Tax Controversy practice group as Tier 1. (The Legal 500 category for Tax Controversy is “US Taxes—Contentious.”) Five members of our federal tax controversy team—Todd Welty, Roger Jones, Jean Pawlow, Robin Greenhouse and Andrew Roberson—were specifically mentioned as part of the Firm’s “outstanding” practice. Welty, Jones and Pawlow all received the Legal 500’s “Leading Lawyer” designation. Jane May, the leader of McDermott’s State and Local Taxation group, was likewise recognized for her controversy expertise.

More generally, McDermott’s US and International Tax practice was honored in the Legal 500’s “US Taxes—Non-Contentious” and International Tax categories. Lowell Yoder, the head of our group, was given a “Leading Lawyer” designation in both categories. Jane May and Damon Lyon received recognition in US Taxes—Non-Contentious, and Caroline Ngo, Kristen Hazel, Phil Levine, Andrew Roberson and Tim Shuman received recognition in International Tax.

For 29 years, the Legal 500 has analyzed the capabilities of law firms around the globe, providing rankings on the strengths of law firms, individual lawyers and practice groups in more than 100 jurisdictions. These rankings are based on feedback from more than 250,000 in-house counsel and the independent assessment of law firm deals and confidential matters by the Legal 500’s researchers. As the Legal 500 puts it, “we highlight the practice area teams who are providing the most cutting edge and innovative advice to corporate counsel.”

Further, the Legal 500 elevated two of McDermott’s Tax Controversy lawyers—Roger Jones and Jean Pawlow—into its “Hall of Fame.” This elite group includes lawyers that have been named “Leading Lawyers” for six consecutive years and have received constant praise by their clients for continued excellence.

McDermott’s full Legal 500 rankings can be found here.

Chambers USA, which releases an annual listing of rankings of law firms and attorneys in various practice areas, has released its 2017 edition. We are honored that Chambers USA has recognized McDermott’s tax practice and several of its attorneys in the latest rankings. A summary of McDermott’s tax rankings is listed below along with a complete list available here to all McDermott rankings.

In the nationwide rankings for Tax Controversy, we maintained our Band 2 ranking. In the state rankings for Tax, we are ranked in Band 1 for Illinois, Band 2 for Washington, DC and Band 3 for Texas.

On the tax controversy side, our team was recognized as known for a “Dominant presence in high-value tax disputes across the USA, fielding particular expertise in transfer pricing litigation and SALT work.” Clients gave us “10 out of 10 for client service,” and added: “They are great at investing in and building a long-term relationship.”  Particularly noted is the value for money we provide.  Clients agreed that they get good value from us: “It’s outstanding client service and worth every penny. Billing has been very detailed and understandable.

Several of our tax controversy attorneys were recognized by Chambers USA on the nationwide and state levels:

Chair of the firm’s tax controversy practice Todd Welty maintains an excellent reputation in the market for his tax controversy and litigation expertise. One impressed source comments: “His knowledge and trial expertise was phenomenal.” His impressive list of clients includes multinationals and Fortune 100 companies.

I have the utmost respect for Roger Jones’s litigation and controversy skills,” states one interviewee. His expert litigation practice sees him frequently act for major corporations at all levels of the federal court system.

Jean Pawlow regularly advises financial institutions on complex tax controversy matters. Observers indicate: “Her practice is very deep and diverse, and her clients benefit from that.

Andrew Roberson comes recommended as an “excellent tax controversy lawyer who has great instincts, is extremely personable and offers really good client skills.” His strong litigation practice is complemented by additional experience in resolving tax disputes in ADR proceedings.

Thomas Borders is a “great and experienced trial lawyer,” according to interviewees. He draws on his experience as a former IRS attorney to act on the full range of federal tax controversy matters, including defending against criminal investigations.

With the inauguration of President Trump, and the accompanying change of administration, the American people have been promised great change in all areas of the federal government. One question we at McDermott have been frequently asked since the election is: what should a taxpayer expect from the Internal Revenue Service (IRS) and the Department of Justice (DOJ) Tax Division while the transitions in the executive branch are taking place? Major tax policy changes are being discussed, but what about the immediate practical effects of a turnover in high-level personnel within these agencies, particularly if a taxpayer is under audit or investigation?

During a change in administration, taxpayers may be affected by any of the following:

  • If under audit, the exam team may ask for longer statute extensions than would otherwise apply, to account for possible delays in internal managerial-level approvals.
  • If a taxpayer is negotiating a settlement, and that settlement requires approval by the IRS National Office or the Assistant Attorney General for Tax, settlement approvals may be delayed due to personnel changes.
  • This applies to civil settlements reached with IRS Appeals, in Tax Court litigation, or in federal district court litigation. Delays are also possible for criminal agreements, including plea agreements, deferred prosecution agreements and non-prosecution agreements.
  • Ongoing litigation (particularly appellate litigation) may be stayed or delayed, to the extent a case involves a policy position that the administration may want to change.
  • The regulatory freeze enacted by the Trump administration also affects procedural regulations, including proposed regulations related to the new partnership audit rules.

Initial comments from prospective Secretary of Treasury Steven Mnuchin indicate that he believes IRS staffing should be increased, which would be a welcome change.  Any significant changes like this are likely to be long-term, however, so we are unlikely to see their effect for some time.

This year has been marked with substantial changes in the manner in which the Internal Revenue Service (IRS) operates. Shrinking resources and retiring IRS professionals have marred the IRS and its efficiency. The pervasive theme for 2016 was trying to do the job with fewer resources.  For example, IRS audits continue to devolve with standardized information document requests (IDRs), international practice unit guides and issue-focused examinations (mostly focused on international tax issues). We say “goodbye” to old friends [au revoir Compliance Assurance Process (CAP) Program] and hello to new rules (e.g., partnership entity audit rules and adjustments). And we have born witness to the slow evisceration of the independence of IRS Office of Appeals.

As we turn the corner to a new year, we expect the IRS’s war on taxpayers to manifest itself in “campaign” after “campaign,” reminiscent of the tiered issue system of days gone by. We expect coordination on a national level to reside with IRS “issue specialists” controlling and dictating audits and appeals, which will increasingly challenge the efficiency of pre-litigation resolution techniques. The end result of these contractions may very likely be an increase in tax litigation as frustration with the administrative process boils over. But the wild card, of course, is what changes will be ushered in by the new administration. Will it be business as usual, or will we see a complete overhaul of the system? Only time will tell, as we wait with bated breath for the ball to drop.  Continue Reading IRS Audits and IRS Appeals — A Year in Review

Several notable court opinions were issued 2016 dealing with a variety of substantive and procedural matters. In our previous post – Tax Controversy 360 Year in Review: Court Procedure and Privilege – we discussed some of these matters. This post addresses some additional cases decided by the court during the year and highlights some other cases still in the pipeline.

Continue Reading Court Opinions – A Year In Review