Within the Internal Revenue Code (Code) is a rule commonly known as the “mailbox rule” or the “timely mailed, timely filed rule.” Under Code Section 7502(b), the date that an item—including a Tax Court petition—is postmarked and mailed can also be the date the item is considered filed. When an item is received after the filing deadline, the mailbox rule can make all the difference. There are, however, procedural requirements which must be satisfied. In Pearson v. Commissioner, the Tax Court, in a court-reviewed opinion, held that a Tax Court petition mailed with a Stamps.com postage label was timely filed under the mailbox rule.

Taxpayers generally have 90 days to file a petition with the Tax Court after receiving a notice of deficiency. In Pearson, the Tax Court received the taxpayers’ petition one week after the 90-day period expired, but the envelope in which the petition was mailed bore a Stamps.com postage label dated within the 90-day period. The administrative assistant who created the Stamps.com postage label supplied the court with a declaration under penalty of perjury stating that she went to a US Post Office the same day as the postage label date and mailed the petition. Continue Reading Tax Court: Mailbox Rule Can Apply with Stamps.com Postage Label

We previously posted on the Order by the US District Court for the Western District of Texas in Chamber of Commerce of the United States of America, et al. v. Internal Revenue Service, Dkt. No. 1:16-CV-944-LY (W.D. Tex. Sept. 29, 2017). In that Order, the court held that Treas. Reg. § 1.7874-8T was unlawfully issued.  See here for our prior post.  As expected by many, the government on November 27, 2017, appealed the Order to the Court of Appeals for the Fifth Circuit. The next steps are for the Fifth Circuit to set a briefing schedule and a date for oral argument. We will continue to follow this case and provide updates.

On November 8, 2017, Facebook, Inc. and Subsidiaries (Facebook) filed a complaint in the District Court for the Northern District of California asserting that the Internal Revenue Service (IRS) had improperly denied Facebook access to Internal Revenue Service (IRS) Appeals. Facebook’s complaint seeks a declaratory judgment that the IRS unlawfully issued Revenue Procedure 2016-22, 2016-15 I.R.B. 1, and unlawfully denied Facebook its statutory right to access an independent administrative forum. Facebook also requests injunctive relief from the IRS’s unlawful position, or action in the nature of mandamus to compel the IRS to provide Facebook access to an independent administrative forum. Continue Reading Facebook Goes to District Court to Enforce Access to IRS Appeals

Internal Revenue Code (Code) Section 385 provides that the US Department of the Treasury (Treasury) is authorized to issue regulations to determine whether an interest in a corporation is to be treated for purposes of the Code as stock or indebtedness. After decades of inaction, proposed regulations were issued on April 14, 2016. The proposed regulations were not well-received; the tax bar had serious and substantial comments to the proposed regulations. Among the most important critiques, there were criticisms for the potential overbreadth of the regulations’ application to foreign-to-foreign transactions, the lack of a de minimis exception for smaller companies and for the anticipated burden of the contemporaneous documentation requirements.

Treasury released final regulations under Code Section 385, which are effective as of October 21, 2016. Although the proposed regulations were changed in some respects, the final regulations retained strict documentation requirements.

In Executive Order 13789, the President called on Treasury to identify and reduce tax regulatory burdens that impose undue financial burdens on US taxpayers, or otherwise add undue complexity to federal tax law. In response, Treasury indicated on October 2, 2017, that it would potentially revoke the documentation requirements under the proposed regulations. Continue Reading The Slow Death of the Section 385 Regulations

On November 6, 2017, the Internal Revenue Service (IRS) released two new International Practice Units (IPUs) relating to Advance Pricing Agreements (APAs) for inbound and outbound tangible goods transactions. The IPUs provide a summary of the APA process, the types of APAs, and the interpretation and impact of an APA. The IPUs focus on the APA analysis for inbound distributors and outbound distributors. As we have previously noted, this high-level guidance to field examiners signals the IRS’s continued focus on international tax issues.

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.

In Estate of Levine v. Commissioner, the US Tax Court (Tax Court) rejected an Internal Revenue Service (IRS) attempt to expand upon the privilege waiver principles set forth in AD Inv. 2000 Fund LLC v. Commissioner. As background, the Tax Court held in AD Investments that asserting a good-faith and reasonable-cause defense to penalties places a taxpayer’s state of mind at issue and can waive attorney-client privilege. We have previously covered how some courts have narrowly applied AD Investments.

In Estate of Levine, the IRS served a subpoena seeking all documents that an estate’s return preparer and his law firm had in their files for a more-than-ten-year period, beginning several years before the estate return was filed and ending more than four years after a notice of deficiency (i.e., which led to the Tax Court case) was issued. The law firm prepared the estate plan and the estate tax return in issue. The law firm represented the estate during the audit, and after the notice of deficiency was issued, the law firm was engaged to represent the estate in “pending litigation with the IRS.”   Continue Reading Tax Court Says IRS’s “Drift-Net” Argument to Expand Privilege Waiver Must Be Anchored in Principles

On October 30, 2017, Paul Manafort Jr. was indicted for concealing his interests in several foreign bank accounts, as well as tax evasion and a host of other criminal charges.  The indictment reminds us how important it is to follow the strict guidelines of the reporting regime that the Internal Revenue Service (IRS) and the US Department of the Treasury have established to disclose foreign bank accounts.

Pursuant to the Bank Secrecy Act, a US citizen or resident (a US Person) is required to disclose certain foreign bank and financial accounts which he or she has “a financial interest in or signature authority over” annually.  This obligation can be triggered by direct or indirect interests; a US Person is treated as having a financial interest in a foreign account through indirect ownership of more than 50 percent of the voting power or equity of a foreign entity, like a corporation or partnership.  The US Person is required to annually disclose the interest on FinCEN 114, Report of Foreign Bank and Financial Accounts, which is commonly referred to as the FBAR.  The disclosure requirement is triggered when the aggregate value of the foreign account exceeds $10,000.  The form is filed with your federal income tax return.

The civil penalties for failing to timely disclose an interest in a foreign account can be severe, and in the case of willful violations, can reach up to 50 percent of the highest aggregate annual balance of the unreported foreign financial account each year.  The statute of limitations for FBAR violations is six years, and the willful penalty may be assessed for more than one year, creating extreme financial consequences for FBAR reporting failures.

Continue Reading Manafort Indictment Is a Good Reminder of FBAR Disclosure Requirements

The October 2017 issue of Focus on Tax Strategies & Developments has been published. This issue includes five articles that provide insight into US federal and international tax developments and trends across a range of industries, as well as strategies for navigating these complex issues.

Republican Leaders Release Tax Reform Framework
By David G. Noren Alexander Lee

M&A Tax Aspects of Republican Tax Reform Framework
By Alexander Lee, Alejandro Ruiz and Timothy S. Shuman

State and Local Tax Aspects of Republican Tax Reform Framework
By Peter L. Faber

Grecian Magnesite Mining v. Commissioner: Foreign Investor Not Subject to US Tax on Sale of Partnership Interest
Kristen E. Hazel, Sandra P. McGill and Susan O’Banion

The IRS Attacks Taxpayers’ Section 199 (Computer Software) Deductions
Kevin Spencer, Robin L. Greenhouse and Jean A. Pawlow


Read the full issue of Focus on Tax Strategies & Developments