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Weekly IRS Roundup January 23 – January 27, 2023

by | Jan 30, 2023 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 23, 2023 – January 27, 2023.

January 23, 2023: The IRS released Internal Revenue Bulletin 2023-4, which highlights the following:

  • Proposed Regulation 114666-22: This proposed regulation modifies the participant election rules in Section 1.401(a)-21(d), providing an alternative to in-person witnessing of spousal consents required to be witnessed by a notary public or plan representative. The proposed regulation also clarifies that certain rules for the use of an electronic medium for participant elections also apply to spousal consents.

January 23, 2023: The IRS is requesting comments concerning Form 5227, Split-Interest Trust Information Return, which is used to report the financial activities of a split-interest trust described in Section 4947(a)(2) and determine whether the trust is treated as a private foundation and thus subject to excise taxes. Written comments should be received by March 24, 2023.

January 23, 2023: The IRS announced the beginning of the 2023 tax filing season, with a focus on improving customer service. The IRS also urged taxpayers to file their returns electronically with direct deposit to expedite refunds and avoid delays. The deadline for most people to file tax returns this year is April 18, 2023, however, storm victims in Alabama, California and Georgia have until May 15, 2023.

January 23, 2023: The IRS is requesting comments related to proceeds of bonds used for reimbursement. This regulation clarifies when the allocation of bond proceeds to reimburse expenditures previously made by an issuer of the bond is treated as an expenditure of the bond proceeds. Written comments should be received by March 24, 2023.

January 23, 2023: The IRS released Tax Tip 2023-06, which provides information about the adoption tax credit for families with adoption-related expenses. Taxpayers must complete Form 8839 to claim the credit and attach it to their tax return.

January 24, 2023: The IRS reminded taxpayers that they must answer a digital asset question and report all digital asset-related income when filing their 2022 federal income tax return. This is the same procedure as fiscal year 2021. The term “digital assets” has replaced “virtual currencies,” which was a term used in previous years. The question appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return.

January 24, 2023: The IRS reminded taxpayers to choose their tax preparer carefully. Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares it. Anyone who is paid to prepare federal tax returns must have a valid Preparer Tax Identification Number.

January 24, 2023: The IRS released Tax Tip 2023-07, urging taxpayers to avoid common mistakes when filing their tax returns by carefully reviewing them. [...]

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Special IRS Team Working to Identify Emerging “Abusive Transactions”

by and | Sep 7, 2022 | ,

Earlier this year, the Internal Revenue Service (IRS) announced the creation of a new Joint Strategic Emerging Issues Team (JSEIT). The new initiative, announced at the New York University School of Professional Studies Tax Controversy Forum in June, brings together different agency divisions and organizations to identify and address emerging tax compliance issues. Various divisions, such as the Small Business/Self Employed (SB/SE), Large Business & International (LB&I), Tax Exempt/Government Entities (TE/GE) and Criminal Investigation divisions, will work together to bring each division’s expertise and specialties into one place to quickly address new issues that are brought to the IRS’s attention.

The goal of JSEIT is to help taxpayers with compliance issues and message them about which transactions work or do not work from a compliance perspective. The purpose of JSEIT is to act as a communication vehicle to identify areas that should be looked at in more detail by the various IRS divisions. In this vein, JSEIT seeks to provide messaging to taxpayers on emerging issues so that they are informed early on as to how the IRS views a particular transaction. JSEIT is not focused on transactions the IRS has already deemed abusive (e.g., certain syndicated conservations easements and micro-captive insurance transactions) but seeks to identify developing issues and alert the public to those issues.

JSEIT has not yet identified any specific emerging issues or transactions that it is investigating. Rather, it receives input from various sources, such as the public and IRS personnel, as to emerging issues to keep an eye on. One example of input from the public is a June 28, 2022, letter from a retired certified public accountant discussing “multinational profit-shifting structures” and Internal Revenue Code Section 482 and the application of effectively connecting income taxation.

JSEIT also looks to social media and ideas that are posted on the internet. This is consistent with the actions of LB&I examination teams, which frequently look to US Securities and Exchange Commission filings and LinkedIn profits and posts to gain background information on corporate taxpayers and their operations.

The IRS Office of Chief Counsel is also involved in JSEIT. Chief Counsel attorneys sometimes hear about a new transaction from a tax practitioner or an examination team and can bring that to JSEIT so that it is aware of the new transaction. This allows Chief Counsel attorneys to be involved early on and to provide guidance to examination teams as to what transactions it believes are compliant and which are not. For example, Chief Counsel attorneys can tell revenue agents what to look for in an emerging issue and what information to request from the taxpayer to gain a better understanding of the transaction.

As we recently discussed, the IRS is set to receive significant funding that will be deployed to improve taxpayer service and enhance tax compliance. JSEIT may benefit from this increased funding and be able to identify more issues on which to focus and the most effective [...]

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Weekly IRS Roundup August 29 – September 2, 2022

by | Sep 6, 2022 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 29, 2022 – September 2, 2022.

August 29, 2022: The IRS released Internal Revenue Bulletin 2022-35, which highlights the following:

  • Revenue Ruling 2022-15: This revenue ruling provides interest rates for tax overpayments and underpayments for the fourth quarter, starting October 1, 2022. The new rates are as follows:
    • Individuals: 6% per year, compounded daily, for both overpayments and underpayments
    • Corporations: 5% for overpayments; 6% for underpayments
    • Corporate overpayments for the portion exceeding $10,000:5%
    • Large corporate underpayments: 8%
  • Revenue Ruling 2022-16: This revenue ruling provides the average annual effective interest rates on new loans under the Farm Credit System and also contains a list of the states within each Farm Credit System Bank territory.
  • Treasury Decision 9964: The IRS released final regulations, providing guidance to states wanting to inspect certain return information for the purpose of administering state laws related to tax-exempt organizations. The final regulations reflect changes to the Internal Revenue Code made by the Pension Protection Act of 2006.

August 29, 2022: The IRS announced that September is National Preparedness Month and urges everyone to develop or update their emergency plans, especially with hurricane season approaching and the ongoing threat of wildfires.

August 29, 2022: The IRS released Tax Tip 2022-132, highlighting the Security Summit’s summer series, Protect Your Client; Protect Yourself. Professionals from the IRS, state tax agencies and others in the tax industry joined forces for a five-week series focused on the fundamentals of data and information security.

August 30, 2022: The IRS released Tax Tip 2022-133, clarifying taxpayer obligations during a Chapter 13 bankruptcy.

August 31, 2022: The IRS announced that Edward Killen will become division commissioner of its Tax-Exempt and Government Entities (TE/GE) division, effective September 30, 2022. The current TE/GE Commissioner, Sunita Lough, is retiring. Chief Privacy Officer Robert Choi will replace Killen as deputy commissioner of TE/GE.

August 31, 2022: The IRS released COVID Tax Tip-134, reminding parents of refunds and tax credits they may be missing if they do not normally file a tax return.

August 31, 2022: The IRS asked for comments on Form 7205, which is used to claim deductions for energy-efficient commercial buildings. The IRS wants to standardize the procedures for claiming the deduction and invites comments by October 31, 2022.

September 1, 2022: The IRS released Tax Tip 2022-135, providing suggestions to tax professionals on ways to protect clients from identity theft.

September 2, 2022: The IRS issued a statement acknowledging that it released confidential information from Form 990-Ts, which should not have been made public. Form 990-T is a business tax return used by tax-exempt entities to report and pay income [...]

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Weekly IRS Roundup July 11 – July 15, 2022

by | Jul 18, 2022 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 11, 2022 – July 15, 2022. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

July 11, 2022: The IRS announced that the Nationwide Tax Forum will start July 19, 2022. The programing includes a keynote address by IRS Commissioner Chuck Rettig, updates on tax law, cybersecurity, ethics and more. The virtual event will take place over a five-week period from July 19 to August 18 on Tuesdays, Wednesdays and Thursdays each week. Those wanting to participate must register at least three business days in advance to guarantee access. Attendance at the webinars qualifies as continuing education (CE) for enrolled agents, certified public accountants, Annual Filing Season Program participants, California Tax Education Council (CTEC) participants and Certified Financial Planners (CFP).

July 12, 2022: The IRS issued renewed warnings for tax professionals to guard themselves against identity theft. This effort begins next week with the Security Summit’s annual summer campaign, “Protect Your Clients; Protect Yourself,” which is focused on tax professionals taking steps to prevent data theft from their offices. This will mark the seventh year that the IRS, state tax agencies and the national tax community have teamed up to raise awareness on the issue.

July 12, 2022: The IRS announced a special virtual session for those interested in becoming an IRS revenue agent. The agency plans to hire 470 revenue agents for the Small Business Self Employed (SB/SE) division. For further discussion, see our recent post.

July 12, 2022: The IRS issued Tax Tip 2022-105, reminding taxpayers that they can log into their account to check account information, including balance, payments and tax records.

July 13, 2022: The IRS reminded taxpayers to file their tax returns as soon as possible. The agency also encourages people to utilize special tools on IRS.gov to help them file and access assistance.

July 13, 2022: The IRS issued Tax Tip 2022-106, which gives points on how taxpayers should evaluate whether they have a hobby or business.

July 14, 2022: The IRS is requesting comments on Form 8874, Form 1041-QFT and Form 706-GS(T). Form 8874 is for investors seeking a credit for their equity investment; Form 1041-QFT is the return for a qualified funeral trustee to report the trust’s taxes; and Form 706-GS(T) is used to report taxes due from trust terminations subject to generation-skipping transfer tax.

July 14, 2022: The IRS issued Tax Tip 2022-107, which provides information on Individual Retirement Arrangements.

July 14, 2022: The IRS announced a free IRS/Federal Trade Commission webinar focused on scams and identity theft. The webinar will also cover how a taxpayer can add a layer of protection by applying for [...]

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IRS Provides Guidance to LB&I Examiners on Requesting Participation in Appeals Conferences

by and | Nov 12, 2021 | , , ,

We recently covered the Appeals Team Case Leader Conferencing Initiative: Summary of Findings and Next Steps (Appeals Summary) in relation to the participation of Large Business & International (LB&I) exam teams and Internal Revenue Service (IRS) Chief Counsel attorneys in conferences before the IRS Independent Office of Appeals (IRS Appeals). As discussed, the Appeals Summary concluded that IRS Appeals would be given discretion to invite exam teams and Chief Counsel attorneys to attend IRS Appeals conferences in the future. In determining whether such discretion should be exercised in a case, the Appeals Summary states that both the taxpayers’ and the exam teams’s views should be solicited and considered.

In a November 8, 2021, memorandum (LB&I Memorandum), the Acting Assistance Deputy Compliance Integration for the LB&I Division Theodore D. Setzer provided guidance to LB&I employees on requesting participation. The LB&I Memorandum reflects the LB&I Divisons’s view that participation in certain IRS Appeals conferences is important for fostering effective tax administration and assisting IRS Appeals in resolving tax controversy on a basis which is fair and impartial to taxpayers and the government. Thus, LB&I employees “should continue to request to be invited where LB&I participation would help improve understanding of factual and legal differences in a case.” The LB&I Memorandum directs LB&I employees to consider the following nonexclusive list of factors before making a request to attend an IRS Appeals conference:

  • The case is factually complex;
  • History has shown lack of meeting of the minds regarding the underlying facts or legal positions;
  • The taxpayer’s characterization of LB&I’s position in the formal written protest is not accurately stated and participation by both the taxpayer and LB&I at the Appeals conference will assist Appeals in both bridging the lack of understanding and better understanding the case;
  • The taxpayer has presented multiple legal arguments or authorities that it relies on to support its position;
  • The case involves outside experts or expert opinions;
  • The case involves an issue of importance to tax administration, such as a case of first impression; one involving the interpretation of a new statute or regulation when there are no reported opinions or when published guidance is pending or where precedent is otherwise absent or conflicting; one affecting large numbers of taxpayers or an industry; or one falling within an operating division’s major strategic goal;
  • The case involves an issue in which the Government seeks to distinguish a position set forth in published guidance;
  • The case involves an issue coordinated under strategic compliance/coordination initiative such as LB&I campaigns or
  • A tax shelter case involving a “Listed Transaction” or substantially similar transaction within the meaning of Treas. Reg. 1.6001-4(b)(2), or a “Transaction of Interest” under Treas. Reg. 1.6011-4(b)(6).

The LB&I Memorandum states that a participation request must be made in one of two ways. The first is by indicating the request on Form 4665, Report Transmittal. According to Internal Revenue Manual Section 4.10.8.12.6 (03-25-2021), Form 4665 is used to [...]

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Weekly IRS Roundup July 12 – July 16, 2021

by | Jul 19, 2021 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 12, 2021 – July 16, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

July 12, 2021: The IRS issued a news release announcing the launch of a Spanish-language version of the Child Tax Credit Eligibility Assistant, an online tool designed to assist families in determining their eligibility for advance payments of the Child Tax Credit.

July 13, 2021: The IRS issued a news release announcing the imminent issuance of another round of tax refunds to taxpayers who paid taxes on unemployment compensation in 2020, pursuant to the retroactive exclusion of such compensation from 2020 taxable income under the American Rescue Plan Act of 2021.

July 14, 2021: The IRS issued a news release announcing the start of a summer campaign by the Security Summit, a partnership between the IRS, state tax agencies and private organizations to raise awareness within the tax community about identity theft and data security.

July 15, 2021: The IRS issued Revenue Ruling 2021-14, providing various prescribed interest rates for federal income tax purposes for August 2021.

July 15, 2021: The IRS issued Notice 2021-44, providing the monthly update to certain interest rates used for pension plan funding and distribution purposes.

July 15, 2021: The IRS issued a news release announcing the disbursement of the July round of advance payments of the Child Tax Credit, consisting of approximately 35 million payments worth approximately $15 billion.

July 16, 2021: The IRS issued Revenue Procedure 2021-30, updating the procedures for the correction programs under the Employee Plans Compliance Resolution System (EPCRS), a program for retirement plans to come into compliance with certain requirements under sections 401, 403 and 408 of the Code.

July 16, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our Washington, DC, office for this week’s roundup.



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Cryptocurrency Global Tax Enforcement: What Investors and Companies in the Industry Need to Know NOW

by , and | Jun 30, 2021 | ,

On June 28, 2021, McDermott held a webinar presentation titled “Cryptocurrency Global Tax Enforcement: What Investors and Companies in the Industry Need to Know NOW.”

Topics during this webinar included:

  • How to address the tax consequences of past virtual currency transactions, including potential voluntary disclosure considerations.
  • How to protect your business from a US Department of Justice (DOJ) or UK investigation, including compliance updates to address this risk.
  • Law enforcement perspectives and updates from the IRS, DOJ and a former high-level director at HM Revenue & Customs.
  • How to respond to an IRS letter, including potential civil resolutions.
  • How to respond to a DOJ or a UK Serious Fraud Office (SFO) inquiry, summons, subpoena, search warrant or a whistleblower complaint.

A link to the webinar is available here. A link to the webinar’s slides is available here.



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IRS Issues Practice Unit on Section 965 Transition Tax

by and | Mar 24, 2021 | , ,

One of the most pressing audit issues for large taxpayers today centers on the Internal Revenue Code (Code) Section 965 transition tax. The Internal Revenue Service (IRS) has designated Code Section 965 as a campaign issue and is actively auditing taxpayers’ transition tax calculations and positions, along with other tax reform items. The stakes are high, particularly given the potential to pay this tax over a period of eight years.

On March 23, 2021, the IRS released a Practice Unit that provides an overview of the Code Section 965 transition tax with references to relevant resources. Unfortunately, unlike some other Practice Units, guidance is not provided as to the type of information revenue agents should be requesting from taxpayers.

Practice Point: Practice Units are presentation-type materials compiled by the IRS as a means for collaborating and sharing knowledge among IRS employees. They provide helpful guidance to revenue agents in the form of an overview of the law in a specific area, examination tips and guidance and references to relevant resources. Although the Code Section 965 transition tax Practice Unit does not provide insights into the types of questions and information that revenue agents may seek on audit, it is still useful for taxpayers to review to understand the IRS’s perspective in this area.



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Weekly IRS Roundup March 8 – March 12, 2021

by | Mar 17, 2021 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 8, 2021 – March 12, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

March 11, 2021: The IRS released Internal Revenue Bulletin 2021-11, dated March 15, 2021, containing the following highlights: Notice 2021-20 (Employment Tax); Notice 2021-18 (Income Tax) and Notice 2021-19 (Income Tax).

March 12, 2021: The IRS updated its campaign list to add a new campaign for compliance with section 179D and to retire the campaign for the proper treatment of economic development incentives.

March 12, 2021: The IRS issued a Practice Unit on selling a partnership interest, covering areas such as: (1) ownership changes on sale of interest to a new or existing partner; (2) proper reporting of gain; (3) section 751 assets; (4) section 1250 assets and (5) section 754 elections.

March 12, 2021: The IRS requested comments on Form 1099-C (Cancellation of Debt) regarding cancellation of debt and removal of the 36-month non-payment testing period rule.

March 12, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Samuel DiPietro in our Chicago office for this week’s roundup.



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