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IRS Guidance

Prepare for Examination Season

by Kevin Spencer and McDermott Will & Schulte | Dec 20, 2017 | IRS Audits, IRS Guidance, Tax Reform, Uncategorized

The tax bar is abuzz with the talk of tax reform. Clients are in modeling purgatory, trying to calculate its effects and plan for the future. Public accounting firms are suggesting how to accelerate deductions in 2017 to take advantage of the massive tax rate decline in 2018. Now more than ever, there are substantial economic incentives to accelerate deductions in 2017 and defer income until 2018. Yes, it’s beginning to look a lot like Christmas and the end to what bodes to be a historic year for federal tax!

Not to be a Grinch, but consider the following as you prepare for year end. If you attempt to accelerate any deductions, make sure to have a complete, “audit-ready” file if the Internal Revenue Service (IRS) decides to test your position. Consider how you will protect against the assertion of any penalties; typically, your ticket to get of out penalty “prison” is to maintain proper substantiation and to establish a reasonable cause defense. An opinion of counsel is one method to meet your burden of establishing that defense. It is always better to be proactive and anticipate an IRS audit than to be reactive and try to compile the proper documentation after-the-fact.

Tax Reform Conference Committee Reaches Agreement

by McDermott Will & Emery, David G. Noren, Lowell D. Yoder, Sandra P. McGill and Timothy S. Shuman | Dec 18, 2017 | IRS Guidance, Tax Reform, Uncategorized

A House-Senate conference committee has reached agreement on a compromise version of the Tax Cuts and Jobs Act, which includes substantial changes to the corporate and international business taxation rules. The stage now appears to be set for final passage and enactment of the legislation before the end of 2017.

Maintaining Confidentiality While Navigating Cross-Border Transactions

by McDermott Will & Emery and McDermott Will & Emery | Dec 14, 2017 | IRS Audits, IRS Guidance, Privilege and Non-Disclosure, Uncategorized

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. (more…)

Governments are Pulling Back the Crypto-Currency Curtain

by McDermott Will & Emery and Roger J. Jones | Dec 13, 2017 | Court Procedure Matters, IRS Audits, IRS Guidance, Trial Courts, Uncategorized

Coinbase Inc., a virtual currency exchange platform, was recently ordered by the United States District Court for the Northern District of California to provide the Internal Revenue Service (IRS) with 2013-2015 transaction data for thousands of Coinbase accounts. See United States v. Coinbase Inc., et al., No. 17-CV-01431-JSC, 2017 WL 5890052, (N.D. Cal. Nov. 28, 2017). The IRS, citing references to 5.9 million customers and more than $6 billion of bitcoin transactions on Coinbase’s website, identified a potential reporting gap, since only 800-900 taxpayers have identified bitcoin transactions on their tax returns in the past few years. (Coinbase’s website currently references 10 million customers and $50 billion in transactions.) Although the IRS narrowed the scope of the third-party record keeper summons it had originally issued to Coinbase under Code Sections 7602, 7603 and 7609 (aka, a “John Doe Summons”), the parties could not reach agreement on what was to be produced, and the government initiated enforcement proceedings earlier this year. (more…)

Tax Court: Mailbox Rule Can Apply with Stamps.com Postage Label

by Jeffrey M. Glassman and McDermott Will & Schulte | Dec 5, 2017 | Court Procedure Matters, IRS Guidance, Trial Courts, Uncategorized

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. (more…)

Government Appeals Defeat in Anti-Inversion Regulation Case

by McDermott Will & Schulte | Nov 29, 2017 | Appellate Courts, Court Procedure Matters, IRS Guidance, Uncategorized

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.

Facebook Goes to District Court to Enforce Access to IRS Appeals

by K. Christy Vouri-Misso and Robin L. Greenhouse | Nov 13, 2017 | Court Procedure Matters, IRS Guidance, Trial Courts, Uncategorized

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. (more…)

The Slow Death of the Section 385 Regulations

by McDermott Will & Emery and McDermott Will & Schulte | Nov 9, 2017 | IRS Guidance, Uncategorized

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. (more…)

IRS Releases Two International Practice Units on APAs for Inbound and Outbound Tangible Goods Transactions

by McDermott Will & Schulte | Nov 7, 2017 | IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

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.

Paradise Papers Revelations Highlight Importance of IRS Voluntary Disclosure

by Editorial Team | Nov 6, 2017 | IRS Guidance, Uncategorized

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.

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