As previously described in part in Disputing Tax and in a recent Bloomberg article that included remarks from Kat Gregor, Facebook has been involved in a multi-front litigation with the IRS for almost two years. It began when Facebook refused to extend the statute of limitations for a sixth time to allow the IRS to continue to its nearly five-year long audit of Facebook for the tax years 2008 to 2010. The IRS responded by filing suit to enforce a summons and then by issuing a Notice of Deficiency alleging that Facebook owed additional tax as a result of its $7 billion undervaluation of certain intangibles transferred to Facebook Ireland. Facebook appealed the Notice of Deficiency in Tax Court and also filed two separate lawsuits in the U.S. District Court for the Northern District of California. Continue Reading Northern District of California Strikes a Blow to the Taxpayer Bill of Rights in Facebook Decision
In a recent Law360 article, Kat Gregor comments on current and future tax obligations Meghan Markle, Duchess of Sussex, should consider as a U.S. citizen living abroad and married to a non-U.S. resident. Kat notes that the Duchess is still responsible for reporting and paying taxes on her worldwide income in accordance with Section 61 of the Code. One way to avoid these obligations would be to renounce her U.S. citizenship after becoming a British citizen. In the event that the Duchess decides to expatriate, it would be advisable to do this before the couple has children to avoid unwanted U.S. citizenship “…because she and Prince Harry cannot expatriate their children, all of the income and assets of those children would need to be reported to the U.S.”
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In a recent The Drawdown article, “Tax Comes Under ESG Spotlight,” tax partner Andrew Howard provides commentary on how companies might approach assessing reputational risks from tax decisions in the ESG global arena. Howard notes, that in light of recent attitude shifts toward tax transparency, we may see “policymakers bring forth rules that erode confidentiality in tax affairs in favour of greater openness to the general public, not just authorities.”
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In a recent Law360 article, Kat Gregor comments on a Supreme Court’s decision to grant cert to BNSF Railway Co.’s petition for review of whether payroll taxes should be deducted from compensation owed to a former employer for lost wages in connection with a workplace injury. This case is an appeal from an Eighth Circuit decision that leaves a disconnect between the definitions of taxable compensation described in the Railroad Retirement Tax Act and the Railroad Retirement Act. The IRS has historically held that taxable compensation should include pay for time lost pursuant to Treasury regulations. Kat notes that if the Supreme Court were to determine that the IRS did not have authority to issue the applicable regulations, “…it could make the IRS feel as if their hands are a little bit more tied in putting together tax reform guidance. So, it’s possible it can have an effect on new regulations.”
Click here to read the full article, including more insights from Kat.
On May 14, 2018, the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) in Murphy v. NCAA. PASPA was passed in 1992 to prevent the expansion of sports gambling by the states. Prior to PASPA, only four states, Nevada, Delaware, Montana and Oregon, had legalized sports wagering. Until the Supreme Court’s decision, PASPA prevented any additional states from joining their ranks.
The Supreme Court was presented with a challenge to the state of New Jersey’s attempts to repeal prior states laws prohibiting sports wagering. The state argued that its actions could not be constitutionally prohibited under principles of state sovereignty. The Supreme Court agreed, reasoning that, under the Tenth Amendment, the federal government could either pass its own federal legislation regulating sports wagering and thereby pre-empt state legislation or leave the states to regulate sports wagering as they saw fit, but it could not compel state legislatures to enact state laws in service of federal interests.
Although the decision leaves open the possibility that the federal government could pass legislation prohibiting sports wagering affecting interstate commerce, unless it does so, the right to authorize sports wagering has been returned solely to the states. Several states in addition to New Jersey, including New York, Pennsylvania, Connecticut, Mississippi, and West Virginia, recently passed legislation authorizing sports wagering in anticipation of PASPA being struck down. Nearly 20 states have separately passed legislation to allow for fantasy sports gaming, including most of New England, New York, and the Mid-Atlantic, as well as a collection of states across the Southern and Midwestern United States.
As states rush to change their laws, industry experts estimate that the sports wagering industry could grow to tens or even hundreds of billions of dollars in gross revenue. Although some commentators have already issued warnings about the regressive nature of gambling taxes and the limited profitability of sports wagering, many states are betting on a sports wagering payday and tacking revenue raising measures onto these legalization efforts. A new Pennsylvania law, for instance, requires a license fee of up to $50,000 to conduct fantasy contests and a 15% tax on gross gaming revenues, the total revenue after deducting prizes paid out, and a $10,000,000 license fee and a 34% tax on gross gaming revenue. A new Mississippi law will charge a license fee of $5,000 to fantasy sports operators and impose a tax on 8% of revenues. Legislation introduced in Kentucky would charge a $250,000 initial license fee to sports wagering operators and impose a 20% tax on gross gaming revenue. Although New York has already passed authorizing legislation, it is considering a modified law that would enable mobile sports wagering and charge a tax of 8.5% on gross gaming revenue. As for Massachusetts, it has already legalized fantasy sports gaming through July 31, but is now proposing a permanent provision that would also add a $100,000 license fee and a 15% tax. At this rate, the main wager may be whether the new laws will be fully operational in time for football season.
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- Tax Planning for Domestic & Foreign Partnerships, LLCs, Joint Ventures & Other Strategic Alliances 2018. Kat Gregor will be a featured panelist discussing “Interesting Partnership Transactions” at the PLI conferences in Chicago on May 2 and in San Francisco on June 5.
- ABA Section of Taxation May Meeting. Kat Gregor will moderate a panel of leading experts on “Administrative Practice Committee Important Developments” on May 11 in Washington D.C. Topics include new guidance addressing tax reform, BBA technical corrections updates, and administrative and examination/appeals updates.
- FBA 2018 42nd Annual Tax Law Conference. Ropes & Gray sponsored the March 9th conference in Washington D.C.
- FBA Tax Boston and Ropes & Gray Co-hosted Event with Speaker Judge David Gustafson of the United States Tax Court. On February 27, attendees were provided the opportunity to network and connect with practitioners from Boston area law and accounting firms, the Internal Revenue Service, local non-profit organizations and local law school students. If you would like to be added to the mailing list to receive future invites to these events, click here.
The omnibus appropriations bill signed into law on March 23, 2018 included several technical corrections to the new partnership audit regime (the “Technical Corrections”), originally enacted in 2015, that goes into effect for partnership taxable years beginning in 2018. Many of the Technical Corrections were included in a technical corrections bill proposed in 2016 but never enacted. Other changes echo proposed regulations promulgated in 2017, giving legislative authority to those rules. Key among the Technical Corrections are authorization to use a push-out procedure in tiered partnerships, a new “pull-in” procedure, and rules governing partnerships that do not pay assessments following an audit. Note that the omnibus bill generally did not include technical corrections relating to the tax reform legislation enacted in December 2017 (with one exception to address the so-called “grain glitch”). Continue Reading Omnibus Appropriations Legislation Enacts Technical Corrections to Newly Effective Partnership Audit Rules
In this Ropes & Gray podcast, Gabby Hirz, counsel in the tax controversy group, is joined by Loretta Richard, a partner in the tax and benefits group and co-founder of the tax controversy group, and Christi Lazo, counsel in the private client group, to discuss another notable Tax Court decision, Lender Management LLC v. Commissioner of Internal Revenue. Lender Management considered whether a family office was operating a trade or business and could therefore deduct investment expenses as business expenses.
In a recent Tax Notes International article, “Is Fishing in Tax Waters Getting Easier or Just More High Tech?,” Brian Studniberg, Gabby Hirz and Loretta Richard provide commentary on the continued role of international information exchange on request given the availability of automatic information exchange.
Click here to read the full article including further insight from the group.
In a recent Law360 article, “IRS Could Replace Offshore Voluntary Disclosure Program,” Gabby Hirz comments on the pending closure of the IRS Offshore Voluntary Disclosure Program (OVDP), which allows U.S. taxpayers who have not disclosed foreign bank accounts to come forward while avoiding criminal penalties and paying a reduced civil penalty. Gabby observes that the IRS’s request for comments has caused speculation as to whether IRS is developing a new version of the OVDP. To read more observations from Gabby, please click here.