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.
On February 27, 2018, the Boston Chapter of the Federal Bar Association (FBA) Tax Section and Ropes and Gray co-hosted an event that featured Judge David Gustafson of the United States Tax Court. The event provided the opportunity for attendees to network and connect with other practitioners from Boston area law and accounting firms, the Internal Revenue Service, local non-profit organizations and LLM students from Boston University School of Law and Suffolk Law School.
Judge Gustafson was appointed as judge by former president George W. Bush in 2008. Prior to his appointment, Judge Gustafson served as a trial attorney, Assistant Chief and eventual Chief in the Court of Federal Claims Section of the Tax Division in the U.S. Department of Justice. He offered a variety of interesting remarks about his experience as a Tax Court judge, and provided a behind-the-scenes look at the process behind reviewed opinions.
To view photos from the event, please click here. For more information about the FBA Tax, or to be notified about future events by email, please contact Boston co-chair Gabby Hirz at email@example.com
On March 13, 2018, the IRS announced its first substantive Large Business and International Division (“LB&I”) compliance campaigns focused on partnerships and their partners. Although in January 2017, the IRS announced its intent to conduct a “TEFRA Linkage Plan Strategy Campaign” geared toward new procedures and techniques for assessing tax on partners after TEFRA-audits, its other 23 campaigns announced in 2017 were largely industry-specific campaigns, focused on discrete transactions, or focused on other kinds of taxpayers, such as individuals and foreign corporations. That changed last week with the announcement of three new campaigns focused uniquely on entities taxed as partnerships and their partners and members. The campaigns will focus on three particular circumstances: (1) individual partners or members who provided services to their partnership or LLC without reporting income subject to self-employment tax; (2) individual partners who have reported sales of partnership interests who may have improperly reported the character of their gain or loss; and (3) partnerships who have failed to file returns although continuing to engage in business activities and their partners who have not reported corresponding income. Partners and partnerships who fall into these categories may receive an examination notice for an issue-based examination, or a soft letter alerting them that their tax return may be incorrect. In addition, partners intending to sell partnership interests or report income from services to a partnership this year may want to watch for changes to forms and instructions, including in their tax software.
For more information regarding the new LB&I compliance campaigns, read our full alert here.
On March 13, 2018, the IRS announced a new Large Business and International Division (“LB&I”) compliance campaign determined to impose tax adjustments on taxpayers who have deducted the costs associated with a tax-free spin-off, split-off or split-up under Section 355. In general, transaction costs to facilitate section 355 transactions must be capitalized. The IRS will be examining tax returns of entities reporting section 355 transactions to determine if they attempted to currently deduct transaction expenses. Taxpayers who conducted section 355 transactions in the past few years may want to consider reviewing their return positions to determine if they may be a target of this campaign.
For more information regarding the new LB&I compliance campaigns, read our full alert here.
- 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