New and notable in IRS tax controversy

Transcription

1 New and notable in IRS tax controversy

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2018 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 1

3 Today s presenters Andy Steigleder Principal, Central Tax Controversy Leader, Ernst & Young LLP Frank Ng Executive Director, NTD Tax Controversy, Ernst & Young LLP Bob Ratchford Senior Manager, Central Tax Controversy, Ernst & Young LLP Matthew Cooper Senior Manager, NTD Tax Controversy, Ernst & Young LLP Page 2

4 Today s agenda IRS organizational and budget update LB&I campaigns Recent transfer pricing directives Tax reform impact on IRS Strategy considerations in preparing for appeals Appeals considerations Global information reporting BBA partnership audit rules Page 3

5 IRS organizational and budget update Commissioner designee Charles Rettig Chief Counsel designee Michael Desmond IRS FY 2019 budget $11.1b: $320m for tax reform implementation IRS FY 2017 statistics update: Number of employees 72,803 down from 94,346 in FY 2010 Large corporate audits coverage 7.9% down from 9.5% in FY 2016 $1m > individuals audits 4.4% down from 5.8% in FY 2016 Page 4

6 LB&I campaigns Background Large Business and International Division (LB&I) announced 13 campaigns in a January 31, 2017, news release. Eleven new campaigns were announced November 3, Five additional campaigns were announced March 13, Campaigns have different treatment streams, including soft letters. First campaigns are not necessarily issues with the highest compliance risk. LB&I plans more campaigns in the future. Cornerstone of campaigns is internal and external feedback. Page 5

7 LB&I campaigns Select issues Campaign Description Treatment stream Exec champ Self-Employment Contributions Act (SECA) tax Costs that facilitate an IRC 355 transaction Verify that limited partners and limited liability company (LLC) members who render services to clients on behalf of the partnership or LLC pay SECA tax Ensure that taxpayers are not deducting costs to facilitate a tax-free corporate distribution under IRC 355 Issue-based exams Outreach to practitioners, professional service provider associations and software vendors Issue-based exams Cliff Scherwinski Darlena Billops-Hill Scott Ballint Related-party transaction Related-party transactions in the mid-market Issue-based exams Pete Puzakulics Repatriation Form 1120F non-filer Repatriation strategies resulting in tax-free repatriation mid-market Improved issue selection Issue-based exams Use external data to identify Form 1120F non-filers Soft letters Issue-based exams John Hinding John Hinding Inbound foreign distributors Inbound transfer pricing Training Jennifer Best Issue-based exams Page 6

8 Recent transfer pricing directives LB&I issued the following five transfer pricing directives on January 12, 2018: Interim instructions on issuance of mandatory transfer pricing information document request (IDR) in LB&I examinations Instructions for examiners on transfer pricing issue examination scope appropriate application of IRC 6662(e) penalties Instructions for LB&I on transfer pricing issue selection and scope of analysis best method selection Instructions for LB&I on transfer pricing issue selection reasonably anticipated benefits (RABs) in cost-sharing arrangements (CSAs) Instructions for examiners on transfer pricing issue selection cost-sharing arrangement stock-based compensation Page 7

9 Tax reform impact on IRS IRS tax reform implementation efforts: IRS Tax Reform Implementation Office (TRIO) Transition tax issues Does change in law change IRS examination strategy? Years prior to tax reform? Future years? Page 8

10 Strategy considerations in preparing for appeals LB&I examination teams are providing a statement of facts related to an unagreed issue and asking the taxpayer to acknowledge those facts (acknowledgment of facts (AOF) IDR) are accurate. Strategy: Whether to respond? When to respond? How to respond? Why respond? Page 9

11 Appeals considerations In-person conference Involvement of compliance personnel (exam and counsel) in appeals Expanding use of Rapid Appeals Process Settlement contrary to national office advice Page 10

12 Global information reporting Global information reporting is replete with evolving requirements and operational complexity US reporting on payments to US persons US withholding at source on payments to non-us persons Foreign Account Tax Compliance Act (FATCA) The Common Reporting Standard (CRS) Reporting on US and foreign source income paid to US persons (i.e., Form 1099 reporting) Backup withholding at 28% applicable if taxpayer identification/documentation requirements not met Purpose: Enable IRS to match income paid with tax filings of US recipients Withholding (generally at 30%) and reporting on certain US source income paid to non-us persons; also addresses effectively connected income of non-us persons and gains from the sale of real property Purpose: Collect appropriate amount of tax on US source income paid to non-us persons Requires financial institutions (FIs) to collect, validate and report certain documentation and information to identify offshore investments of US persons Purpose: Verify that US persons pay US tax on income received through offshore investment by matching income with tax filings; impose withholding on payments to foreign FIs who fail to comply FATCA-like regime developed by the Organisation for Economic Cooperation and Development and adopted by approximately 100 countries; requires FIs to collect and validate certain documentation and report information to identify residents investing outside of their jurisdiction of tax residence Purpose: Enable local tax authorities to track the foreign investment of their own residents Risk of noncompliance Liable for tax withholding (generally 30% or 28%) and penalties, business disrupted by account closures or stopped payment, and sanctions by local tax authority Benefit of proactive compliance Efficiency and control through process and technology, thereby reducing cost of operations and the tax, business and reputation risks of poor tax performance Page 11

13 BBA partnership audit rules New partnership rules and procedures enacted by the Bipartisan Budget Act of 2015 (BBA), which are generally effective for tax returns beginning January 1, 2018 BBA rules affect: Audit procedures Who pays tax resulting from audit adjustments How much tax is paid Who is subject to BBA? Partnership representative IRS guidance update Other considerations Page 12

14 Q&A Page 13

15 #EYDTC Thank you!

16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com