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August 2018 brought two major developments in the Department of Treasury’s race to finalize its partnership audit reform regulations before partnerships begin in early 2019 filing tax returns for the first time under the new regime. First, on August 7, the Department of Treasury (“Treasury”) issued final regulations for partnership representatives. Second, on August 13, Treasury issued new proposed regulations implementing the centralized partnership audit regime, consolidating, amending, and releasing its prior regulations issued in 2017 and early 2018. Our prior coverage of these initial regulations can be found here and here. Both sets of regulations issued in August include certain substantive changes due to comments received by the IRS.

To read the full article, click here.

In a recent Tax Notes article, the author addresses a recent IBA conference panel focused on OECD’s implementation of the base erosion and profit-shifting (BEPS) program. Kat Gregor, who was a speaker on this panel, provides commentary on BEPS’ penalty fallout. Kat provides insight on the positive and negative implications of the program and notes how practitioners should address their tax planning needs, both in the EU and the US.

To read the full article, please click here.

As previously reported by Ropes & Gray, on July 24, 2018, the Ninth Circuit reversed the Tax Court’s prior decision in the Altera case and upheld the IRS regulation requiring the allocation of stock-based compensation in qualified cost-sharing agreements. The decision was particularly notable since it ended in a 2-1 vote, in which Judge Reinhardt, who passed away in March 2018, cast the deciding vote. Late last week, the Ninth Circuit appointed a new judge, Susan Graber, to replace Judge Reinhardt under a local procedural order mandating that the court clerk randomly draw a replacement judge upon the death of any panel member. However, in lieu of awaiting any motions for rehearing, today the Ninth Circuit withdrew its opinion “to allow time for the reconstituted panel to confer on this appeal.” Since a withdrawn decision has no legal effect and the decision of the court could change, affected taxpayers who have not already taken action in response to the decision should consider watching and waiting for a new opinion to be issued before taking any further action. To read today’s order, click here.

In a recent Law360 article, Kat Gregor provides insight on the Ninth Circuit’s ruling in the Altera case. The article analyzes what factors might lead to a reconsideration of the decision—a rare en banc review. If the decision stands, billions of dollars are at stake for multinational corporations. With this idea in mind, Kat noted that “if other companies are in similar positions as Altera and apply for a tax refund, they are now likely to be denied those tax benefits following the Ninth Circuit’s decision.”

Click here to read the full article.

In two recent Bloomberg Law articles, Kat Gregor comments on rules governing deductibility of payments enacted to governments as part of 2017 tax reform, including deporting requirements under section 6050X of the Code. The purpose of these new guidelines is to “boost transparency in corporate settlements and make it easier for the IRS to keep track of how much of a settlement payment a company is required to pay off.” Kat specifically notes that the Code’s vague standard might lead to misinterpretation by foreign courts as to what constitutes as restitution or compliance payments (as compared to non-deductible payments).

Click here and here to read more of Kat’s insights.

In an unexpected 2-1 decision, Judge Reinhardt, who passed away in March of this past year, cast the Ninth Circuit’s deciding vote to reverse the Tax Court’s prior ruling in Altera. In 2015, the Tax Court invalidated Treasury Regulation 1.482-7A(d)(2)’s requirement that related parties allocate stock-based compensation costs when entering into cost-sharing agreements to develop intangible assets. The Tax Court’s decision in Altera centered on the IRS’s failure to support the regulation with examples of unrelated parties sharing stock-based compensation costs (comparable uncontrolled transactions). This failure was fatal, according to Judge Marvel of the Tax Court, because to require related taxpayers to share stock-based compensation absent any evidence of similar behavior by unrelated parties would mean the regulation did not seek parity between these groups of taxpayers, contrary to the long-standing arm’s-length principle for transfer pricing. As a result, the Tax Court held that the regulation did not meet the reasoned decision-making standard in the State Farm Supreme Court case.

Click here to read the full alert.

In a recent Law360 article, Kat Gregor comments on a recent Treasury Inspector General for Tax Administration report that highlights the IRS’ stalled enforcement of the Foreign Account Tax Compliance Act (“FATCA”). This stalled enforcement demonstrates that although the agency has cracked down on unreported offshore accounts, there are associated logistical challenges that must considered. Kat notes that the IRS “has a lot of data” and that it would be “difficult for any entity to use such a high volume of data effectively.” She also states that one of the “IRS’ goals should be giving the appearance of an effective, efficient enforcement, so people believe that there will be consequences.”

  • Click here to read the full article, including more insights from Kat.
  • Click here to read another Disputing Tax article focused on potential replacement of the offshore voluntary disclosure program discussed in this posting.