On Wednesday, December 20, 2017, the House of Representatives voted to pass the most significant tax reform legislation in three decades (the “Act”) just hours after the Senate passed the measure. The legislation’s provisions will affect a broad range of taxpayers, making substantial changes to the taxation of businesses, individuals, and tax-exempt organizations, and adding significant complexity to the international tax regime. The Act will now be sent to President Trump’s desk, and it is expected that he will sign the bill into law.

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On November 29, 2017, the Department of Treasury (“Treasury”) issued proposed regulations (REG-119337-17) addressing certain international tax aspects of the centralized partnership audit regime passed into law in the Bipartisan Budget Act of 2015 (the “BBA Rules”). The newly proposed regulations provide rules addressing FATCA and other tax withholding on foreign partners and the treatment of certain foreign tax payments made by a partnership. The newly proposed regulations are one piece of guidance expected from Treasury as the BBA Rules come into effect for partnership tax years beginning after December 31, 2017. Continue Reading New Partnership Audit Regulations Released as Effective Date Draws Near

After months of screening global tax policies by the European Council’s Code of Conduct Group, the EU has finalised its tax-haven blacklist – a list of non-cooperative jurisdictions for tax purposes, which currently comprises the following 17 jurisdictions: American Samoa, Bahrain, Barbados, Grenada, Guam, Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, South Korea, Trinidad and Tobago, Tunisia and United Arab Emirates. The list is the EU’s latest initiative to crack down on aggressive tax avoidance, made more crucial by the recent Panama and Paradise paper information leak.

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In a recent Law360 article, “‘Willfulness’ In Civil FBAR Cases Comes Down To The Facts,” Kat Gregor commented on a recent court decision allowing a pharmaceutical company CEO to escape civil penalties for failing to report his Swiss bank account because his conduct was not intentional.  Kat noted that although the IRS expects taxpayers to understand their offshore reporting obligations, this case shows that courts will act as “a stopgap to the IRS’ views as to reasonableness and their view of the facts.”  Click here to read the full article including more observations from Kat.

 

 

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

Last week the House Republicans introduced the Tax Cuts and Jobs Act, their long-awaited first draft of tax reform legislation, bringing Congress one step closer to achieving tax reform. Earlier this year, the House of Representatives and the Senate passed budget resolutions with reconciliation directives, clearing a path for tax reform which is not subject to a potential filibuster by Senate Democrats. These steps, along with the introduction of the House Republicans’ legislation, increase the possibility of major federal tax reform in the coming months. The tax reform proposals could have significant consequences for current and prospective parties to so-called “tax receivable agreements.”

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On Thursday, November 2, 2017, House Republicans introduced the Tax Cuts and Jobs Act, their long-awaited tax reform legislation, followed quickly by an amendment introduced on Monday, November 6 by House Ways and Means Committee Chair Kevin Brady. The bill is expected to evolve significantly in the coming days and weeks. Meanwhile, the Senate is working on its own tax reform proposals. If enacted in its current form, the bill would produce the most sweeping changes to the tax code in over a decade. Read the full alert.

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).

In September 2017, the American Bar Association (“ABA”) Section of Taxation submitted comments to the IRS on proposed regulations implementing the partnership audit procedures enacted as part of the Bipartisan Budget Act of 2015.  Ropes & Gray was honored to play a role in the drafting of these comments, an effort lead by the ABA Section on Taxation’s Administrative Practice Committee.  Partner Kathleen Saunders Gregor, senior attorney Gabrielle G. Hirz, and associates Joshua A. Lichtenstein, Yuval Peled, Veronika Polakova, and Kathryn Seevers were all recognized as substantial contributors.

As described in past Ropes & Gray client alerts here and here, the Bipartisan Budget Act created a new regime for auditing partnerships, repealing the Tax Equity and Fiscal Responsibility Act rules that have been in place since 1982.  The new regime is intended to facilitate audits of large and tiered partnership structures by the Internal Revenue Service as well as permitting the IRS to collect tax directly from partnerships, rather than collecting tax from each individual partner as provided under TEFRA.  The new regime goes into effect for returns for tax years beginning after December 31, 2017.

The comments address the proposed regulations and recommend that a variety of changes be made before they are finalized. Click here to read the comments