As we previously discussed, the United States Tax Court (Tax Court) closed its doors on December 28, 2018, until further notice. However, trial sessions scheduled for the weeks of January 7, and 14, 2019, were to proceed as scheduled. The Tax Court has updated its website to confirm that the trial sessions scheduled for the week of January 14, 2019, will proceed as scheduled, but that trial sessions scheduled for the week of January 28, 2019, in El Paso, Los Angeles, New York, Philadelphia, San Diego, and Lubbock are canceled. A decision regarding the trial sessions for the week of February 4, 2019, will be made on or before January 18, 2019.

As a result of the shutdown, the Tax Court did not issue any Orders or Opinions from December 31, 2018, to January 9, 2019. It started issuing Orders again on January 10, 2019, but no Opinions have been issued since December 27, 2018.

Practice Point: In addition to its impact on governmental agencies, the government shutdown continues to disrupt judicial operations. Some federal courts have continued to issue opinions during this time but activity in many cases has been postponed or canceled.

On December 10, 2018, the Supreme Court granted certiorari in the case of James L. Kisor v. Peter O’Rourke, Acting Secretary of Veteran Affairs, S.Ct. Dkt. No. 18-15. Although this is not a tax case, it has significant implications for taxpayers and tax practitioners. The reason: the Court will finally squarely address the issue of whether it should overrule its controversial opinions in Auer v. Robbins, 519 US 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 US 410 (1945). Those opinions held that an agency is uniquely positioned to interpret any ambiguity in its own regulations and, therefore, such interpretations should be afforded controlling deference so long as reasonable. The Court’s decision to grant certiorari in Kisor is significant because the sole question to be considered is “[w]hether the Court should overrule Auer and Seminole Rock” and not how to apply that doctrine.

In the tax context, the Internal Revenue Service (IRS) and the Department of Justice (DOJ) Tax Division have both argued that interpretations taken in unpublished guidance are eligible for Auer deference, even if such positions are articulated for the first time on brief in a pending case in which the agency is a party. Courts have not been uniform in their application of Auer. For example, the Tax Court has indicated that to receive deference the IRS’s position should be in published guidance while some courts have given deference to statements made on brief.

The death of Justice Scalia, who ironically wrote Auer but later advocated for its demise, seemed to strike a blow to those seeking to overrule it. However, with the recent additions of Justices Gorsuch and Kavanaugh, it appears that the Supreme Court many now have a majority of Justices in the anti-Auer camp given that Chief Justice Roberts and Justices Thomas and Alito have all expressed doubts about the doctrine in the past. Additionally, the continuing role of Chevron deference has been questioned and, if Auer is overruled, Chevron could be the next deference battleground.

We will continue to follow this case closely and provide updates in the future. In the meantime, the links below contain prior discussions on Auer and other forms of deference in the tax context.

Chambers USA released its 2018 edition of annual rankings of law firms and lawyers in various practice areas. We are honored that Chambers USA has recognized McDermott’s tax practice and several of its lawyers 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.

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 said we are “very responsive and very good advisors,” and added, “they are very cohesive and have vast experiences.” Clients agreed that they get good value from the Firm; “It’s outstanding client service and worth every penny. Billing has been very detailed and understandable.Continue Reading McDermott Continues to Receive Top Rankings in Tax in Chambers USA 2018

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.