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Justin Jesse focuses his practice on US and international tax and tax controversy. He advises clients on all aspects of tax disputes, including cases before the US Tax Court, US district courts and the Internal Revenue Service (IRS). Such matters have included disputes relating to captive insurance, research and development credits, transfer pricing and tax advantaged transactions. He has also represented clients before Congress relating to investigations of tax-related matters. Read Justin Jesse's full bio.

Today, taxing authorities across the globe, including the Internal Revenue Service (IRS), are increasing their efforts to gather and share sensitive taxpayer information, often aggressively seeking copies of tax advice, opinions and analysis prepared by counsel and other advisors. In some situations, tax advisors specifically draft their advice to be shared with third parties, but frequently the IRS seeks advice that was always intended to be confidential client communications—for example, drafts and emails containing unfinished analysis and unguarded commentary. Sharing this latter type of advice could be problematic for taxpayers because such advice could be used as a road map for examiners during an audit and may mislead the IRS regarding the strength or weakness of a taxpayer’s reporting positions.

Last month, we spoke to tax executives at Tax Executives Institute forums in Houston and Chicago about the IRS’s increased use of treaty requests to obtain US taxpayers’ documents and information from international tax authorities. Continue Reading Maintaining Confidentiality While Navigating Cross-Border Transactions

As anticipated in our earlier post, Country-by-Country (CbC) reporting is finally here! On Wednesday, the US Department of the Treasury released final regulations for CbC reporting, effective June 30, 2016. The final regulations apply to any US person who is the “ultimate parent” of a multinational enterprise group that has annual revenue for the preceding year of at least $850 million. For tax years beginning after June 30, 2016, taxpayers subject to the final regulations will be required to file a new Form 8975 Country-by-Country Report with their US federal income tax returns. CbC reporting will likely change the disclosure landscape for entities operating in multiple countries.

On March 28, 2016, the U.S. Tax Court announced interim changes to its Rule of Practice and Procedure to incorporate changes made by Congress at the end of 2015.  The interim changes impact several areas of the Tax Court’s Rules, including the impact of bankruptcy proceedings on the court’s jurisdiction, actions for review of failure to abate interest,  partnership actions and jurisdiction related to passport certification actions.  Additionally, the changes amend the rule regarding the application of the rules of evidence in Tax Court proceedings, which is summarized below.

Pursuant to IRC § 7453, the Tax Court has historically followed the rules of evidence as applied by the United States District Court of the District of Columbia in trials without a jury.  Congress’s recent amendment to IRC § 7453 removed the reference to the rules of the United States District Court of the District of Columbia, and added a reference to the Federal Rules of Evidence.

To incorporate Congress’s change, the Tax Court amended Rule 143 regarding evidence that is effective immediately and a final proposed amendment that is subject to public comment.  Tax Court Rule 143 now states that:

Trials before the court will be conducted in accordance with the Federal Rules of Evidence.

The amendment applies to all proceedings commenced after December 18, 2015, and also applies to all other proceedings pending on that date to the extent it is just and practicable.

The effect of the amendment to IRC § 7453 and Tax Court Rule 143 is to extend the so-called Golsen rule (named for Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971)) to evidence issues.  Pursuant to this rule, the Tax Court chooses to follow the case law of the circuit to which a case is properly appealed.  In prior cases and unpublished orders, the Tax Court had cited to both D.C. Circuit opinions and opinions of the circuit where any appeal in the specific case would normally lie in deciding evidentiary issues.  This change may cause controversy where there is a split in the circuits on a particular evidence issue, for example in the case of the attorney-client privilege and the work-product doctrine.  However, the change ensures that, as with other legal issues presented, the court will follow the law of the circuit to which the case is appealable.

Country-by Country (CbC) reporting is on the horizon for large US multi-national enterprises (MNE).  As part of the broader Base Erosion Profit Shifting (BEPS) project undertaken by the Group of 20 (G20) and the Organisation for Economic Co-operation and Development (OECD), the United States will soon require the parent entity of large US MNE groups to file with the Internal Revenue Service (IRS) a new annual report that requires information regarding income earned and taxes paid by the group on a country-by-country basis.  The new reporting requirements would generally apply to US MNE groups with annual revenues of $850 million or more.

Late last December, Treasury published proposed regulations detailing the future reporting process.  Recently, Robert Stack, Treasury deputy assistant secretary (international tax affairs) indicated that Treasury anticipates issuing final regulations by June 30, 2016, which would be effective for US MNEs with tax years beginning after that date. (Stack’s comments are available at Tax Notes, here and here.)  Because the US reporting requirements will go into effect in the middle of 2016, some US MNE groups have expressed concern that other tax jurisdictions may require subsidiaries to file CbC reports.

Both Treasury and the IRS believe that CbC reporting will assist in better enforcement of the US tax laws, though there is some concern that information collected may be too readily shared with other tax jurisdictions that may not safeguard such information as carefully as the United States.  Indeed, the Preamble to the new CbC reporting regulations states that CbC reports filed with the IRS may be exchanged with other reciprocating tax jurisdictions in which the US MNE group has operations, and Treasury expects that the competent authority will enter into competent authority agreements for the automatic exchange of CbC reports under the authority of information agreements to which the US is a party.  The Preamble also provides that information exchanged may not be disclosed or used for non-tax purposes.

Mr. Stack recently affirmed the priority of the confidentiality of information gathered through CbC reporting, stating that the United States would have the right to stop sharing information if the other tax jurisdiction were to disclose it.  The issue of confidentiality of CbC reporting was recently highlighted by efforts in the European Union to provide for the public disclosure of CbC reporting.