Tax Blog/Blawg

As if the waters for small captive insurance arrangements hadn’t been muddied enough after Avrahami v. Commissioner, on June 18, 2018, the U.S. Tax Court issued the second opinion in a small captive case, Reserve Mechanical Corp. v. Commissioner, this time holding that the taxpayer’s participation in a risk pool failed to satisfy the risk distribution requirement (i.e., the sharing of a sufficient number of independent insurance risks so that no one claim can have too great an adverse financial effect on the insurer) to establish a bona fide insurance arrangement. Until this ...

In a high profile summons enforcement case brought by the Internal Revenue Service against Coinbase, Inc. (United States v. Coinbase Inc., No. 3:17-cv-01431 (N.D. Cal. 2017)), a virtual currency exchange for traders of popular digital cryptocurrencies like Bitcoin, Ethereum and Litecoin, the Internal Revenue Service sought the production by Coinbase of all of its customer records involving Bitcoin transactions from 2013 through 2015.  The number of customers potentially susceptible to such a broad summons request was estimated at just under 500,000.

The U.S ...

Is the IRS getting closer to ferreting out “quiet disclosures” by taxpayers who chose that route to address the problem of previously unreported offshore accounts rather than by participating in the Service's offshore voluntary disclosure program (OVDP)?  That’s the conclusion of an increasing number of tax professionals and if taxpayers in this predicament weren't already worried, they should be.

A quiet disclosure involves the filing of new or amended tax returns that report offshore income, and FBARs (Report of Foreign Bank and Financial Accounts) that provide other ...

Any corporate tax executive who has ever been involved in contesting an audit adjustment knows all too well how unfavorable documents relating to the subject of the adjustment – particularly improvident comments reflected in email correspondences – can be an ongoing impediment to resolving a tax dispute from the audit phase right up to and through litigation with the IRS or Department of Justice.  When such documents exist, even where taken out of context, the government will zealously sink its teeth into them like a junkyard dog, making the prospects of reaching a reasonable ...

With the looming increase in tax rates on investment income and capital gains in particular, a large number of stock market investors have been selling long-term positions to lock in the 2012 rate, which currently tops out at 15%.  Come January 1,2013, gain on the same sale could be taxed at a rate as high as 23.8%, consisting of a long-term capital gains tax rate of 20% plus a Medicare surtax of 3.8% imposed on joint filers with AGI greater than $250,000 and single filers with AGI greater than $200,000.  (See Internal Revenue Code § 1411).

A question attracting attention as the year draws to a ...

Employment Tax: Yet Another Opportunity to Come Clean -

Whether a worker is performing services as an employee or as an independent contractor depends on the facts and circumstances.  This determination may be difficult for many companies and may lead to significant exposure.  In order to facilitate voluntary resolution of  potential worker classification issues and achieve the benefits of increased tax compliance and certainty for all parties, taxpayers, workers and the government, the IRS established the Voluntary Classification Settlement Program (“(VCSP”) on ...

Concerned about the extent of international tax non-compliance, Congress enacted the Foreign Account Tax Compliance Act (“FATCA”).  Among other provisions found in FATCA was Section 6038D, which requires certain individuals to annually report to the IRS data about their interests in foreign financial assets.  Sounds simple enough, right?  Well, this seemingly straightforward obligation has been causing significant havoc for taxpayers and their advisors in 2012, as they wrestle for the first time with tricky new issues when deciding whether and/or how to complete Form 8938 ...

In a recent TaxBlawg post, my colleague Jonathan Prokup discussed the IRS’ intention to begin requesting electronic files as part of taxpayer examinations so that it can analyze the “metadata” contained in those files.  One of the concerns raised in the post, as announced in Chief Counsel Advice 201146017, was the possibility that such data in the hands of the IRS may be insecure and therefore potentially susceptible to theft by third-party hackers (which, by the way, could conceivably expose the IRS to damages for disclosure of taxpayer information under IRC § 6103

As reported earlier this week in the tax press, the recently completed initial filing season for Schedule UTP produced at least one major surprise in the eyes of IRS officials, who had anticipated a much greater number of items listed on the average Schedule UTP than actually materialized.  In fact, the IRS’s predictions were off by a wide margin, with the number of disclosed positions of the 1,500 or so Schedule UTPs filed averaging only slightly more than three items per schedule for CIC taxpayers, and less than two items for non-CIC taxpayers.  Pre-filing expectations of item ...

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

My last blog post suggested that the best defense against transfer pricing assessments is the adoption of a globally consistent transfer pricing policy supported by appropriate documentation. Near the conclusion of that post, I noted that the Competent Authority (CA) process and Advance Pricing Agreements (“APAs”) were tools that could be employed if your company faced transfer pricing adjustments.

Although the goal of your transfer pricing policy and related documentation is to manage risk and avoid tax assessments, the nature of the beast is such that there is no precise price one can pinpoint in transfer pricing matters that can completely eliminate the risk of a tax authority’s challenge. Rather, there is usually a range of potential prices that may be appropriate. A tax authority may be inclined to pick a price at the end of the range most favorable to its country from a revenue perspective, leaving the Chief Tax Officer (CTO) to consider a menu of potential remedies, including administrative appeals, litigation, APAs, or perhaps a request for CA assistance.