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News of Wayfair Decision Breaks during Tax in the City® New York

The first New York meeting of McDermott’s Tax in the City® initiative in 2018 coincided with the June 21 issuance of the US Supreme Court’s (SCOTUS) highly anticipated Wayfair decision. Just before our meeting, SCOTUS issued its opinion determining that remote sellers that do not have a physical presence in a state can be required to collect sales tax on sales to customers in that state. McDermott SALT partner Diann Smith relayed the decision and its impact on online retailers to a captivated audience. Click here to read McDermott’s insight about the decision.

The event also featured a CLE/CPE presentation on the ethical considerations relative to tax reform by Kristen Hazel, Jane May and Maureen O’Brien, followed by a roundtable discussion on recent tax reform insights led by Britt Haxton, Sandra McGill, Kathleen Quinn and Diann Smith. Below are a few takeaways from last week’s Tax in the City® New York:

  • Supreme Court Update: Wayfair – Jurisdiction to Tax – The 5-4 opinion concluded that the physical presence requirement established by the Court in its 1967 National Bellas Hess decision and reaffirmed in 1992’s Quill is “unsound and incorrect” and that “stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power.” This opinion will have an immediate and significant impact on sales and use tax collection obligations across the country and is something every company and state must immediately and carefully evaluate within the context of existing state and local collection authority. Click here to read McDermott’s insight about the decision.
  • Tax Reform: Ethical Considerations – Because of tax reform, taxpayers face increased uncertainty and will likely face increased IRS/state scrutiny for their 2017 and 2018 returns. Therefore, it’s crucial for taxpayers to be intentional about post-reform planning and compliance by coordinating among various departments (federal tax, state and local tax, employee benefits, treasury, operations, etc.). Taxpayers should understand the weight of various IRS and state revenue authority guidance, the IRS’s authority to issue retroactive regulations within 18 months of passing legislation, and how to take reasonable positions in the absence of guidance. They should also understand that the IRS is allowed more than three years to assess tax, even when there is an omission of global intangible low taxed income (GILTI) or when the tax relates to the Section 965 transition tax.
  • Tax Reform Changes to Employee Compensation and Benefit Deductions – Post-tax reform, all employees of US public companies, private companies with US publicly traded debt, and foreign issuers with ADRs traded on the US market are covered employees subject to the $1 million limit for deductible compensation. Though a grandfather rule applies if existing contracts are not materially modified, key questions about how to apply this rule remain. Tax reform eliminated the employer deduction for transportation subsidies (other than bicycle subsidies). It also reduced employers’ ability to deduct meal and entertainment expenses, and removed employers’ and employees’ ability to deduct moving expenses.
  • False Claims Act and Starbucks – False Claims Act actions involving state tax issues are becoming more and more [...]

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Retaliation Claims By Corporate Whistleblowers – What Is Too Far?

This week, a French court announced an indictment against UBS related to its alleged treatment of Nicholas Forissier, a former audit manager who provided information to French authorities a decade ago in a tax evasion investigation of UBS.  According to at least one press account, the indictment alleges that Forissier was “forced to work under difficult conditions, including internal criticism and eventual dismissal for gross misconduct in 2009” in retaliation for his cooperation with French authorities. Forissier’s case is apparently one of several whistleblower retaliation claims percolating in the French courts against UBS regarding non-disclosure of offshore accounts for tax purposes.

US law provides significant protections of potential whistleblowers for alleged tax violations. Revisions to IRC section 7623, effective from December 20, 2006, make whistleblower awards mandatory in some cases. The revised law has resulted in several large, public awards (the $104 million award given to Bradley Birkenfeld, for example, also related to UBS disclosures).

Protection for IRS whistleblower claimants is found under a number of statutes and rules.  IRC section 6103(i)(6) provides stringent confidentiality rules (including personal liability for government violators) regarding the government’s disclosure of information tending to reveal the existence of a whistleblower or confidential informant.  Also, the grand jury secrecy rule, Fed. R. Crim. P. 6(e), may provide an additional protection in an ongoing grand jury investigation. Further, OSHA, the False Claims Act and the Fair Labor Standards Act may provide protections against termination of whistleblowers and against adverse employment decisions related to a current employee’s status as a whistleblower, in an appropriate case.

Practice point:  It is also worth noting that these protections are not absolute. In fact, because an IRS whistleblower claimant may be in a privileged relationship with the target of an investigation, the IRS has more recently been called upon to clarify that the agency cannot and should not gather or use privileged information to develop a case, or else undermine the entire case as a violation of that privilege, i.e., the “fruit of the poisonous tree”. See our prior coverage on this issue here.




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