First Quarter Newsletter 2019

STEP Mid Atlantic Webinar: Kat Gregor will be a featured webinar panelist on “What Private Wealth Planners Need to Know About the EU’s Mandatory Disclosure Directive DAC 6.” This panel provided an overview of the elements of DAC 6, provided a comparison to existing US mandatory disclosure rules, explained when foreign tax planning may implicate US criminal conduct, and, through hypotheticals, offered suggestions as to how to navigate the DAC 6 requirements.

ABA Tax Section 2019 Midyear Tax Meeting: Kat Gregor was a featured panelist on “I’m a US Lawyer, What’s the EU Got To Do With Me? – Navigating Ethics in Global Practice.” This panel explored various international initiatives that have implemented increased tax transparency measures and have potential ethical impact on U.S. tax professionals, including lawyers.

In a recent Law360 article, tax partner and tax controversy group co-founder Kat Gregor, tax controversy counsel Elizabeth Smith and litigation associate Liz Tolon explore the tax privilege nuances associated with attorney-client privilege and other relevant analogs that exist to protect client confidentiality. Their article discusses applicable privileges in the tax context, as well as two key exceptions: waiver and the crime-fraud exception. It also examines three recent cases that highlight the practical implications of these exceptions.

To read the full article, please click here.

On December 21, 2018, IRS and Treasury issued final regulations implementing the partnership audit regime (T.D. 9844). The final regulations largely adopt, with some changes, the proposed regulations issued in August 2018. By issuing almost 200 pages of preamble, the final regulations provide extensive discussion of which comments were incorporated and why others were not.  Likely, IRS is thinking ahead to litigation over the validity of the regulations by issuing such broad discussions of the comment process.  The most significant changes to the proposed regulations are changes to the definition of partnership-related items and changes allowing administrative adjustment of partnership-related items.

To read the full article, please click here.

On November 20, 2018, IRS issued a memo on its new voluntary disclosure program (“Voluntary Disclosure Program” or “Program”), following the offshore voluntary disclosure program’s termination on September 28, 2018. The Voluntary Disclosure Program provides taxpayers with a process for voluntarily disclosing tax noncompliance for both domestic and offshore assets to avoid potential criminal liability and prosecution. IRS has discretion to apply the Voluntary Disclosure Program’s procedures to all domestic voluntary disclosures received on or before September 28, 2018. Taxpayers have long been able to disclose voluntarily their tax noncompliance to IRS, either pursuant to IRS’s long-standing practice of allowing voluntary disclosure, under IRM 9.5.11.9, or using the streamlined compliance procedures. However, the Voluntary Disclosure Program is arguably better for taxpayers, in that it provides precise procedures and guarantees that participant taxpayers will not be criminally prosecuted. Under the prior practice, voluntary disclosure was only a factor taken into consideration when determining whether to prosecute criminally.

Continue Reading IRS Announces Voluntary Disclosure Program for Domestic and Offshore Assets

On December 13, 2018, the IRS published proposed regulations (REG-104259-18) on the Base Erosion and Anti-Abuse Tax (the “BEAT”), a new tax regime under the Tax Cuts and Jobs Act (“TCJA”).  BEAT is designed to discourage multinational corporations from profit-shifting behavior by making deductible payments to their foreign affiliates, such as interest, high-margin service payments, rents and royalties.  While the proposed regulations shed light on the implementation mechanism of BEAT, there are some unwelcome surprises and open questions that taxpayers should be aware of.

To read the full article, please click here.

Data analysis is not a new concept, but it nonetheless is the center of a social and technological revolution. In recent months, we have gained significant insight into how the IRS and state taxing authorities are leveraging advanced technology and machine learning to mine the petabytes of taxpayer data that they collect and retain.

To read the entire article, please click here.

The Internal Revenue Service (IRS) and other global taxing authorities are continuing to focus on bringing taxpayers who hold cryptocurrencies into compliance.

As cryptocurrencies have made some investors very wealthy, concern has arisen that investors are not reporting gains to taxing authorities. Internationally, governments are committed to bringing these investors into compliance. The most important compliance-related variables are how to characterize gains and losses, and at what point a reporting obligation arises. While many questions remain to be answered, taxing authorities have issued initial guidance on the treatment of cryptocurrencies, and have scored important victories in obtaining access to information necessary to bring taxpayers into compliance.

Continue Reading IRS Makes Cryptocurrency a Compliance Priority

In a recent Law360 article, Kat Gregor commented on the IRS’s final guidance on partnership audit rules. This new guidance finalizes a subset of the IRS rules implementing the audit regime passed in the 2015 Bipartisan Budget Act. A key aspect of the final rules is the definition of “partnership related items,” which looks to historic rules to define the scope of the new regime. While some may argue that the ambiguity of the TEFRA rules has crept into the new partnership audit regulations, Kat noted that “TEFRA had a ‘robust body of case law’ behind it that could help resolve future disputes around what a partnership- related item is.”

To read the full Law360 article, please click here.

During the January 2019 ABA Tax Section 2019 Midyear Tax Meeting, Kat Gregor, tax partner and co-founder of the tax controversy group, discussed the new EU mandatory disclosure rules (known as DAC6 related to aggressive tax positions) and the ethical obligations of U.S. attorneys to adhere to these rules. Kat noted that “the EU rules are, on the one hand, trying to be more precise as to what they’re interested in catching, rather than in the U.S., where they say any transaction over a certain dollar value has to get reported. But on the flip side, it’s going to be really difficult for people to make the judgment call on whether or not something falls in.”

To read the full article with more insights from Kat, please click here.

In this Ropes & Gray podcast, Isabelle Farrar, a senior associate in the tax controversy group is joined by Harvey Cotton, a principal in the tax and benefits group, and Elizabeth Smith, counsel in the tax controversy group, to discuss the December 2018 decision from the Northern District of Texas in Texas v. United States. This case deals with the constitutionality of the Individual Mandate in the Patient Protection and Affordable Care Act.