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Skip Jail and Clean Up Your Tax Problems

If you have knowingly failed to report income or claimed deductions you know you are not entitled to, or just decided not to file your tax returns and pay the tax owed, you may be liable for civil penalties and even jail time for criminal tax evasion. Taxpayers with civil and criminal tax exposure may want to fix their past mistakes but are afraid of what will happen if they “come clean.” So, the majority of offenders keep offending year after year. But did you know there is an Internal Revenue Service (IRS) program that can help taxpayers get out of that “evasion” cycle, and clean up past tax issues, usually without criminal liability? The IRS has a longstanding program through which taxpayers can make voluntary disclosures of tax underreporting and tax criminal evasion. Such disclosures may help taxpayers limit their criminal exposure, although disclosure does not automatically guarantee immunity from criminal prosecution. The latest iteration of the...

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Section 965 Statutes of Limitations for Partnerships

On May 26, 2020, the Internal Revenue Service (IRS) issued PMTA 2020-08 to provide guidance on the period of limitations for Internal Revenue Code (IRC) section 965, transition tax-related adjustments of partnerships. Typically, pursuant to IRC section 6501, the IRS has three years to assess a tax liability for a tax year. However, IRC section 6501(e)(1)(C) states that if the taxpayer omits from gross income an amount properly includible in income under IRC section 951(a), the tax may be assessed at any time within six years after the return was filed. Moreover, this special six-year limitation on assessment applies to the entire tax liability reportable on that return. Because special assessment and adjustment rules apply to partnerships, the IRS issued guidance on how the rules are applicable to certain partnerships and partners with section 965-related items. For a deferred foreign income corporation’s (DFIC) last taxable year beginning before January 1,...

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IRS Targets Private Foundations That May Be Used by Wealthy Taxpayers in Tax Planning

​In remarks at the NYU Tax Controversy Forum on June 18, 2020, Internal Revenue Service (IRS) officials indicated that the agency is analyzing the use of private foundations for tax planning. Ms. Tamera Ripperda, who is the commissioner of the Tax Exempt and Government Entities (TEGE) Division and previously served as the industry director for the Global High Wealth in the Large Business and International (LB&I) Division, said the agency is focusing on cross-division collaborations to target high-income, high-wealth taxpayers. The TEGE Division has trained more than 400 LB&I agents this year on the use of private foundations in tax planning for high-net-worth individuals. Additionally, the divisions are using data analytics to identify linkages between LB&I and TEGE cases. Commissioner Ripparda stated that TEGE has identified more than 1,000 private foundations “that have linkages or that are interwoven into these global high-wealth enterprises,”...

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Tax Court Holds That Form 870-AD Is Not a Binding Settlement Agreement

A recent US Tax Court Memorandum Opinion held that a settlement agreement embodied in Internal Revenue Service (IRS) Form 870-AD does not preclude the IRS from reopening an audit and issuing a notice of deficiency. In Howe v. Commissioner, T.C. Memo 2020-78, the Tax Court held that equitable estoppel did not bind the Commissioner to an agreement in Form 870-AD. Only settlements that comply with Internal Revenue Code (IRC) sections 7121 and 7122 are binding on both the taxpayer and government, and an IRS Form 870-AD does not comply with those provisions. Further, the Court held that equitable estoppel did not bar the IRS from asserting a larger deficiency against the taxpayer because, even if true, the alleged failures to follow internal IRS procedures would not rise to the level of affirmative misconduct. An IRS revenue agent initially began an audit of the 2008 tax return for the taxpayer, who was CEO and majority shareholder of a healthcare company, in...

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IRS Guidance Signals More Stringent Scrutiny on Transfer Pricing Documentation

On April 14, 2020, the Internal Revenue Service (IRS) issued informal guidance in the form of frequently asked questions (the “FAQs”), urging taxpayers to strengthen their transfer pricing documentation required under Internal Revenue Code (IRC) section 6662(e) and Treasury Regulations § 1.6662-6. IRC section 6662 provides several types of accuracy-related penalties on underpayments of taxes. Pursuant to IRC section 6662(e)(1)(B)(ii), a net adjustment penalty could apply to an intercompany transaction when the net IRC section 482 transfer pricing adjustment exceeds the applicable threshold amount. Taxpayers, however, may avoid a net adjustment penalty by maintaining transfer pricing documentation in accordance with IRC section 6662(e)(3)(B) and Treasury Regulation § 1.6662-6. The IRS indicates that without robust documentation, intercompany transactions may be subject to extensive examination process. The FAQs provide guidelines for preparing high-quality...

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No IDR Enforcement During COVID-19

Yesterday, the Internal Revenue Service (IRS) announced in a memorandum to all Large Business & International (LB&I) division employees that it was suspending the normal Information Document Request (IDR) procedures. The letter suspends enforcement until July 15, 2020; however, LB&I managers will have the discretion to continue with the IDR enforcement process when in their judgment the interests of tax administration warrant (e.g., cases with short statutes, listed transactions or fraud development). The memorandum, however, does not tell examining agents to stop issuing IDRs or working on their cases as the suspension relates only to enforcement of IDRs. Practice Point: The suspension of the IDR enforcement procedures is welcome news to taxpayers with ongoing audits. With tax professionals displaced in their homes while mandatory self-isolation continues, meeting IDR deadlines has been challenging. We suggest, however, that taxpayers try to...

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Weekly IRS Roundup February 10 – 14, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 10 – 14, 2020. February 10, 2020:  The IRS issued a revenue ruling providing guidance regarding how to determine the adjusted basis life of insurance contracts under IRC section 1011 and 1012 given the recent amendments to IRC section 1016(a), which the Tax Cuts and Jobs Act amended to provide that in determining the basis of a life insurance contract or an annuity contract, no adjustment is made for mortality, expense, or other reasonable charges incurred under the contract. The IRS updated Revenue Ruling 2009-13 and 2009-14 to reflect these changes. February 10, 2020:  The Joint Committee on Taxation released a report addressing domestic corporations’ federal tax receipts and tax liabilities. The report summarized the present law and accounting rules regarding corporate taxation, specifically addressing behavioral responses...

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Weekly IRS Roundup February 3 – 7, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 3 – 7, 2020. February 3, 2020:  The IRS and the Departments of Labor and Health and Human Services jointly announced frequently asked questions about the implementation of the Affordable Care Act. The agencies noted that they are tasked with developing standards for use by a group health plan and a health insurance issuer offering group or individual health insurance coverage in compiling a summary of benefits and coverage (SBC). The 2021 iterations of the SBC template, instructions, coverage example guide and narratives—all of which have been recently released—must be used beginning with the first day of the first open enrollment period for any plan year beginning on or after January 1, 2021. February 4, 2020:  The IRS issued an issue snapshot regarding self-dealing under IRC section 4941(d), focusing largely on the...

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Weekly IRS Roundup January 27 – 31, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 27 – 31, 2020. January 27, 2020: The Joint Committee on Taxation released a report regarding an overview of selected provisions and options relating to funding and financing infrastructure investments. The report addresses the use of private activity bonds, new markets tax credits, and the opportunity zones incentive to fund infrastructure projects. The House Ways and Means Committee has scheduled a hearing entitled “Paving the Way for Funding and Financing Infrastructure Investments” on January 29, 2020. January 29, 2020: The IRS issued a notice stating that the health coverage tax credit (HCTC) has been extended for all coverage months beginning in 2020. The IRS explained that eligible individuals can receive a tax credit to offset the cost of their monthly health insurance premiums so long as they have qualified health...

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Weekly IRS Roundup January 20 – 24, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 20 – 24, 2020. January 20, 2020: The IRS released new Instructions to IRS Form 1120-S, US Income Tax Return for an S Corporation. These changes conform to the new regulations, which changed the qualified business income deduction, addressed qualified opportunity fund investments, and removed the AMT refundable credit. In conjunction with these changes, the IRS also released updated Instructions to Form 1065, Partner’s Share of Income, Deductions, Credits, etc., so that it complied with the new rules regarding the qualified business income deduction. January 21, 2020: The IRS issued a notice updating both the corporate bond weighted average interest rates and the permissible range of interest rates used to calculate pension plan minimum funding for plan years beginning in January 2020. The IRS updated various projections,...

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