In October 2016, the Internal Revenue Service (IRS) revised the Internal Revenue Manual (Manual) 8.6.1.4.4 to provide IRS Appeals Division (Appeals) with discretion to invite representatives from the IRS Examination Division (Exam) and IRS Office of Chief Counsel (Counsel) to the Appeals conference. Many tax practitioners opposed this change, believing that it undermines the independence of Appeals and may lead to a breakdown in the settlement process.

In May 2017, the American Bar Association (ABA) Section of Taxation submitted comments recommending the reinstatement of the long-standing Manual provision regarding the limited circumstances for attendance by representatives from Exam and Counsel at settlement conferences. Additionally, the Tax Section’s comments were critical of the practice whereby some Appeals Team Case Leaders (ATCLs) in traditional Appeals cases are “strongly encouraging” IRS Exam and the taxpayer to conduct settlement negotiations similar to Rapid Appeals or Fast Track Settlement, such that many taxpayers do not feel they can decline such overtures. The Tax Section comments suggested that the use of Rapid Appeals Process and Fast Track Settlement should be a voluntary decision of both the taxpayer and IRS Exam and the use of these processes should be the exception rather than the rule. Continue Reading Appeals Large Case Pilot Program Draws Criticism

The ABA recently issued comments to the IRS and Treasury regarding the new temporary regulations issued in TD 9738 concerning the aggregation of controlled transactions, under Section 482, which broaden (“clarify”) the scope of intangible value, to include “all the value provided” from a controlled transaction, and such other transactions that may occur before, during or after, that are so interrelated, as to require aggregate consideration. See attached. While the IRS does not explicitly mention goodwill or going concern—except by reference in one example—the regulations are intended to sweep in the consideration of any goodwill, including synergy, value that may relate to such transactions.

Given the inherent difficulty, and the persistent controversy, as exhibited in the past (i.e., the Veritas and Amazon cases) and as certainly more is yet to come (BEPS) in attempting to determine the value of intangibles generally, let alone goodwill, for the sake of good tax administration, the IRS would do well to provide more concrete/ explicit definitions, or at least boundaries, as to what or when this “extra” value may, or may not, be likely to apply.

This broader scope of consideration is now likely to make it easier for the IRS to recast transactions on economic substance or realistic alternatives grounds, leading to more controversy and disputes, not just with taxpayers, but with foreign governments as well.