Tax Blog/Blawg

Just when the Department of Justice must have thought that it could do no wrong in pursuing the workpapers of taxpayers and their auditors, it ran smack into the formidable blockade that is the Court of Appeals for the District of Columbia Circuit.  In United States v. Deloitte LLP et al., No. 09-5171 (D.C. Cir. Jun. 29, 2010), the D.C. Circuit seems to have fired a shot across the bow of both the Department of Justice and the IRS’s brand-new Schedule UTP.  

Now that the tax extenders legislation has died, what’s next?  At least some of the provisions (e.g., the new tax regime for “carried interests”) are likely to find their way into future legislation.  But what about the tax extenders themselves, such as the look-through rule of section 954(c)(6) and the section 41 research credit?  Although many of the extensions involve tax expenditures (i.e., provisions that cost the Treasury money), they would almost certainly be offset by the bill’s revenue raisers, which were themselves styled as anti-abuse and loophole-closing provisions.  As a result, we probably have not seen the last of these measures.

As a follow up to my colleague George Connelly's earlier post concerning the IRS's recently announced "Global High Wealth" Industry Group, I offer some further thoughts on what the IRS is attempting to do with this new group focusing on wealthy individuals.  The IRS recently announced that the group has issued its first batch of audit letters and the audits of wealthy individuals will soon commence.

The IRS has created the group in the LMSB division, which generally handles audits of the largest corporations under a "team" audit concept.  A team audit means that the IRS assigns several agents to the case, including, where appropriate, specialists in areas like international taxes, financial products, and employment taxes, as well as engineers and economists.

The IRS is concerned with very wealthy individuals who own multiple entities using complicated structures to avoid U.S. federal income taxes.  The individuals may be operating foreign businesses or may have foreign investments through foreign trusts, partnerships, or corporations.

We note with great sadness the death of Marty Ginsburg yesterday at his home in Washington, DC.  Professor Ginsburg's contributions to our profession - as a teacher and author, as an attorney, and as a person - will be remembered fondly.

(Via TaxProfBlog)

As my readers know, I focus my practice on representing people who have “misunderstandings” with the Internal Revenue Service.  I can’t count the number of clients who have made a comment along the lines of “get me Geithner’s deal” since it came to light that he had some significant and frankly embarrassing tax problems while working for the International Monetary Fund.  In point of fact, making a statement like that to an IRS employee is probably one of the worst things a taxpayer could say, because the rank and file IRS employees realize that if they did what Mr. Geithner did, they would be fired on the spot.

Times are tough, and many troubled companies are facing the need to modify debts that were issued when times were better (and the companies were financially much stronger).  For companies that wish to modify their debts, and for investors that hold those debts, federal tax law imposes an unfortunate limitation.  An outstanding debt that undergoes a “significant modification” is treated as having been exchanged for a new instrument with the modified terms.  See Treas. Reg. § 1.1001-3.  As a result, holders of the debt will generally be required to recognize gain or loss on the deemed exchange of the debt and, in some instances, the issuer may be forced to recognize income as well.  Thus, the question of whether a modification will result in a deemed exchange of the debt for federal income tax purposes has the potential to complicate, or even derail, potentially beneficial debt modifications.

TaxBlawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.

As the IRS sifts through dozens of comment letters on the proposed disclosure of uncertain tax positions, in-house tax officers have to wonder what's next. Over the last decade, CTO's have been hit with a barrage of new demands and worries. We have seen the rise of FIN 48 (now ASC 740-10), Sarbanes-Oxley and the resulting increased focus on controls, increasingly burdensome quarterly and annual attest firm reviews, listed transactions disclosures, the electronic filing mandate (Everson's legacy), Schedule M-3, and now the still proposed UTP disclosure.

Notwithstanding the new challenges, the number one performance metric used to judge a tax department's performance is still the effective tax rate ("ETR"). CTO's and their staffs continue to be measured by their delivery on the ETR at a time when most at the IRS seem to believe that all tax planning is bad, outside counsel is becoming more cautious, attest firms are insisting to review opinions (thus jeopardizing privilege), budgets and head count have been cut and, oh by the way, "cash is king".

Anyone paying attention to the media for the last month or so must be aware of the battle the IRS has waged with UBS in order to obtain information about owners of heretofore “secret” accounts in Switzerland.  This is part of an IRS effort to track down tax delinquents who are using overseas accounts to hide their income and assets.  A settlement was recently announced whereby the Swiss agreed to reveal a relatively small (in the grand scheme of things) number of the accounts—4,450 versus the 52,000 that the IRS originally alleged—in order to resolve the dispute.  At this point, the IRS has its eyes on other foreign institutions and one can be sure that this is not going to be the end of the IRS’ efforts.

If you haven’t memorized the 433 pages of the latest version of the American Jobs and Closing Tax Loopholes Act of 2010 (undoubtedly named to allow for the euphonious acronym, AJACTLA), you are denying yourself a unique treat.  (To get the true flavor, don’t forget the fifteen pages of amendments included with the House passage of the bill on May 28.)  We will allow others to give you a full rundown of the 206 sections of the bill and content ourselves with a summary of the highlights.