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Special IRS Team Working to Identify Emerging “Abusive Transactions”

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

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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