Photo of Gabrielle Hirz
  • ABA Tax Section 2018 Midyear Meeting—Kat Gregor and Gabby Hirz will be panelists on “International Tax Reform” and “Litigating Tax Issues in Bankruptcy” respectively from February 8-10.
  • Three Valentines from the IRS—Join Kat Gregor, Jim Brown and moderator Kathryn Seevers on February 14 for a webinar on recent updates to partnership audit reform regulations.
  • FBA Tax Boston Presents David Gustafson of the United States Tax Court—Tuesday, February 27 from 6:00-7:30 p.m. at R&G’s Boston office. For a link to view photos from our last event, click here.

Please reach out to Tracey Hurley if you have questions regarding these events.

In this Ropes & Gray podcast, tax associate Brandon Dunn is joined by tax partners Kat Gregor and David Saltzman to discuss one of the most notable tax decisions from the fourth quarter of 2017 and its implications for taxpayers, particularly multinational corporations. On September 29, 2017, in Chamber of Commerce of the United States of America et al v. Internal Revenue Service et al, the U.S. District Court for the Western District of Texas held that the Internal Revenue Service and the U.S. Treasury Department violated the Administrative Procedures Act by issuing an anti-inversion rule, specifically the “Multiple Domestic Entity Acquisition Rule,” saying it was unlawfully implemented without giving the public enough notice or time to comment.

In November 2017, the IRS Large Business & International Division (“LB&I”) announced the expansion of its compliance campaigns, selecting eleven additional areas on which to focus. IRS LB&I now has 24 total campaigns ongoing, including the 13 campaigns originally announced in January 2017. The new slate of campaigns reflect the IRS’s continued focus on international enforcement. Some particularly notable campaigns include:

  • Swiss Bank Program Campaign. The IRS started the Swiss Bank Program in 2013 to allow financial institutions to disclose information on U.S. account holders in order to reduce, or avoid, their criminal liability for their role in facilitating the evasion of U.S. tax. Since the beginning of the program, approximately 80 banks have participated, and the IRS has amassed a trove of information on U.S. taxpayers. This campaign will seek to leverage the information received to identify taxpayers who have not been complying with obligations to report foreign accounts.
  • Verification of Form 1042-S Credit Claimed on Form 1040NR Campaign. This campaign will focus on verifying withholding credits or refunds claimed by U.S. nonresident taxpayers, to be sure that foreign income is being properly reported.
  • Section 956 Avoidance Campaign. The IRS LB&I wants to be sure that U.S. parent corporations are properly reporting as income loans from controlled foreign corporations. This campaign will also focus on taxpayers who may be pooling cash to avoid their 956 obligations.
  • Deferral of Cancellation of Indebtedness Income Campaign. Taxpayers who incurred COD income in 2009 and 2010 were allowed to report that income over five years, from 2014 through 2018. With the COD deferrals, original issue discount (“OID”) deductions were also meant to have been deferred. Now that the end of the five-year window is approaching, the IRS LB&ID will be assuring itself that COD income and OID deductions are being properly made.

These campaigns, on top of the 13 campaigns announced this time last year, evidence some of the IRS’s biggest priorities headed in 2018. Like the prior campaigns, these new campaigns will use a variety of tools, including issue-based examinations and soft letters. In addition to the four expansion areas examined above, the seven other campaigns focus on: (1) Form 1120-F Chapter 3 and Chapter 4 withholding, (2) foreign earned income or housing exclusion (Section 911), (3) agricultural chemicals security credits (Section 45O), (4) energy efficient commercial building deductions (Section 179D), (5) corporate direct foreign tax credits (Section 901), (6) economic development incentives, and (7) individual foreign tax credits (Form 1116).

 

 

On December 29, 2017, the Delaware Chancery Court decided in LSVC Holdings, LLC. v. Vestcom Parent Holdings, Inc. et al. to deny the buyer’s claim for an allocated share of transaction tax deductions (“TTDs”) taken by the seller in a pre-closing tax filing. TTDs include many transactional expenses, such as professional fees and payments for options cancellations or bonuses. Generally, absent contractual modification, pre-closing TTDs benefit the seller, and post-closing TTDs benefit the buyer. As described further below, this case highlights the importance of careful review of transaction documents, as TTDs can dramatically decrease tax obligations for the company eligible to benefit from them. Continue Reading Delaware Chancery Court Rules that Buyer is Not Entitled to Share in Transaction Tax Deductions

On Wednesday, December 20, 2017, the House of Representatives and Senate passed comprehensive tax reform legislation. The bill, which is expected to be signed by President Trump in the coming weeks, amends the tax treatment of payments made to (or at the direction of) a government, including payments under the False Claims Act and Foreign Corrupt Practices Act. The provisions of the legislation effectively limit the deductibility of those payments to situations where either (a) a court has ordered amounts be paid as restitution, or (b) defendants and the government agree, in settlement agreements, amounts constitute restitution.

Click here to read the full alert.

John D. “Don” Fort, the new chief of the IRS Criminal Investigation division (“IRS-CI”), announced that two new programs will be fully operational in 2018: (1) the Nationally Coordinated Investigations Unit, and (2) the International Tax Enforcement Group. Fort also explained that the Criminal Investigation division is—and will be—increasingly focusing on the use of cryptocurrencies. Read more about those programs and the focus on cryptocurrencies below. Continue Reading IRS Criminal Investigation Division Announces New Programs Fully Operational in 2018

Gabby Hirz, a senior attorney in the Tax Controversy Group discusses one of the most notable decisions of third quarter 2017, Grecian Magnesite Mining v Commissioner of Internal Revenue, with Rom Watson, a partner in the Tax Group and co-head of the firm’s International practice group.  Grecian Magnesite Mining considered whether a foreign corporation’s proceeds arising from the redemption of an interest in a U.S.-based partnership were taxable in the U.S. as U.S.-source income or income effectively connected with a U.S. trade or business (ECI).  In doing so, the Tax Court called into question the validity a 30-year old revenue ruling.

Kat, Gabby and Stefan discuss how the Fifth Amendment applies to tax returns and audits, a particular concern to those reporting illegal income, such as medical marijuana businesses, as well as any taxpayers who fear information on their tax return or requested in an audit could reveal potential criminal activity, such as failing to file a Report of Foreign Bank and Financial Accounts (FBAR).