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Ninth Circuit Interprets Summons Notice Rules Strictly Against IRS

The Internal Revenue Service (IRS) had broad examination authority to determine the correct amount of tax owed by taxpayers. In addition to seeking information directly from a taxpayer, the IRS is also authorized to seek information from third parties. However, Internal Revenue Code (Code) Section 7602(c)(1) requires that the IRS provide “reasonable notice in advance to the taxpayer” before contacting a third party. The US Court of Appeals for the Ninth Circuit recently addressed what constitutes “reasonable notice” for this purpose. In J.B. v. United States, the taxpayer sought to quash an IRS summons for insufficient notice. The taxpayers were selected for a compliance research examination as part of the IRS’s National Research Program, which involves in-depth audits of random taxpayers to improve the government’s access to compliance information and ensure that the IRS is auditing the right taxpayers. The IRS notified the taxpayers of the audit by mail and...

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IRS LB&I Division Announces Its New Year’s Resolutions

Each New Year, many of us look back on the previous year’s activities, and determine what we want to accomplish in the coming year – lose weight, start exercising, read more tax articles, etc. The Internal Revenue Service (IRS) Large Business & International (LB&I) Division memorialized its New Year’s resolutions for 2019 in Publication 5319. So, for taxpayers with more than $10 million in assets, you may want listen up and see what the IRS has in store for 2019! LB&I’s goals come during a time of significant reduction in workforce and increase in responsibilities. LB&I experienced a significant reduction in workforce between October 2017 and October 2018, reducing its workforce by a net of 344 employees (down from 4,868 to 4,524) spread across several positions. This included 18 individuals in leadership, 218 revenue agents and 25 tax examiners. With the exception of tax law specialists, which remained at 24, every other position saw a...

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Desmond Renominated as Chief Counsel

On March 2, 2018, President Trump nominated Michael Desmond to be the Chief Counsel of the Internal Revenue Service (IRS). Unfortunately, the Senate did not get around to confirming him. On January 16, 2019, President Trump renominated Mr. Desmond, and the US Senate Committee on Finance has scheduled a hearing for February 5th to consider his renomination. The Chief Counsel is the top legal advisor to the IRS Commissioner on all matters pertaining to the interpretation, administration and enforcement of the Internal Revenue laws. The Chief Counsel also provides legal guidance and interpretive advice to the IRS, Treasury and to taxpayers. Mr. Desmond clerked for Judge Ronald S.W. Lew of the United States District Court for the Central District of California. From 1995 through 2000, he served as a trial attorney in the Tax Division at the Department of Justice, and from 2005 through 2008 he served as tax legislative counsel at the Department of the Treasury,...

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IRS Releases Practice Units on Permanent Establishments

On January 29 and 30, 2019, the Internal Revenue Service’s Large Business and International (LB&I) division released new Practice Units on Permanent Establishments, which can be found here and here. Permanent Establishments create taxing nexus for foreign businesses doing business in the United States and for those who have “effectively connected income.” The Practice Units provide the IRS’s LB&I audit teams with a general guide on the tax concepts related to permanent establishments. The Practice Units provide examples of the analysis necessary to determine whether a foreign company has a permanent establishment, for example, as a result of its agent concluding contracts on its behalf in the United States. Additionally, the Practice Unit on treaty exemptions describes whether an activity has a preparatory or auxiliary character for purposes of determining whether a foreign enterprise has a US permanent establishment. LB&I auditors will use the...

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Joint Committee Releases Overview of Its Refund Review Process

Clients ask us all of the time, “What is the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS)?” Recently, the JCT has released an overview of its process. Wait, what? After the IRS has agreed to issue you a refund, there is a congressional committee that has to check the IRS’s work? Yep! Internal Revenue Code (IRC) §6405 prohibits the IRS/US Department of the Treasury from issuing certain refund payments to taxpayers until 30 days after a “report” is given to the JCT. Only refunds “in excess” of $5 million for corporate taxpayers and $2 million for all other taxpayers (partnerships, individuals, trusts, etc.) are required to be reported to the JCT. A refund claim is an amount listed on an amended return (e.g., Forms 1140X and 1120X), tentative carrybacks (e.g., Forms 1139 and 1045), and refunds attributable to certain disaster losses. Numerous types of refund payments are excepted from JCT...

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Weekly IRS Roundup October 29 – November 2, 2018

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 29 - November 2, 2018: October 30, 2018: The IRS issued a notice of public hearing on November 28, 2018, regarding the proposed regulations the first-year additional depreciation deductions under section 168(k). October 30, 2018: The IRS Large Business and International Division in an announcement identified five compliance campaigns it approved, which are Individual Foreign Tax Credit Phase II, Offshore Service Providers, FATCA Filing Accuracy, 1120-F Delinquent Returns Campaign and Work Opportunity Tax Credit. We recently blogged about this here. October 31, 2018: The IRS and the Treasury submitted proposed regulations that would reduce the amount determined under Internal Revenue Code Section 956 with respect to certain domestic corporations. November 2, 2018: The IRS released its weekly list of written determinations...

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More Developments on IRS’s Real-Time Audit Program

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...

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Senate Confirms Rettig as Next IRS Commissioner; Desmond Next?

On September 12, 2018, the Senate confirmed, by a vote of 64-33, Charles P. Rettig to be Commissioner of the Internal Revenue for the term expiring November 12, 2022. We previously discussed the nomination of Mr. Rettig and his background here. The IRS Commissioner presides over the United States’ tax system and is responsible for establishing and interpreting tax administration policy and for developing strategic issues, goal and objectives for managing and operating the IRS. This includes responsibility for overall planning, directing, controlling and evaluating IRS policies, programs, and performance. The IRS Commissioner is also required by statute under Internal Revenue Code (Code) Section 7803 to ensure that all IRS employees are familiar with and act in accord with the Taxpayer Bill of Rights. The nomination of Michael J. Desmond to be Chief Counsel of the Internal Revenue Service (IRS) remains pending in the Senate. We previously discussed the...

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Weekly IRS Roundup September 3 – 7, 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...

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