Recent International Activities and Future Focus of IRS LB&I. ABA Section of Taxation May Meeting, 2014 Washington, DC

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1 Recent International Activities and Future Focus of IRS LB&I ABA Section of Taxation May Meeting, 2014

2 Our Panel Fred Murray, Panel Chair Grant Thornton LLP Rocco Femia Miller & Chevalier, Chartered Michael Danilack Deputy Commissioner (International) Large Business & International Division Internal Revenue Service 2

3 Previous Changes Affecting International Enforcement at IRS October 2010 All LMSB international resources were realigned into a new organization and LB&I was created February 2012 APA program, previously operated as a Chief Counsel function, merged with the Mutual Agreement program to form APMA September 2012 Transfer Pricing Practice (TPP) was formed with a staff of about 60 focused on transfer pricing cases in the field APMA and the TPP are united under the Director, Transfer Pricing Operations (TPO) 3

4 Recent Changes Affecting International Enforcement at IRS Early 2013 Foreign Payments Practice (FPP) was formed with a staff of about 70 focused on administration and enforcement of provisions of Chapter 3 (FDAP withholding), Chapter 4 (FATCA), Chapter 61 (1099 reporting), and section 3406 (backup withholding) pertaining to payments to NRAs and foreign entities Ted Setzer takes FPP Director role September 2013 New position, Director of International Strategy was formed Diana Wollman takes Director role 4

5 FPP Field Practice Functions FPP s international examiners conduct audits of Forms 1042/1042-S filed by U.S. withholding agents Experienced examiners devote significant time to training and mentoring less experienced examiners Staffing Territory Manager: David Oyler (Chicago) 6 withholding examination teams (CA, FL, IL, NJ, NY, TX) approx. 55 employees 5

6 FPP Program Office Functions Coordination of activities of Financial Intermediaries Program (responsible for FATCA and QI compliance) Coordination of activities of Planning & Analysis Office (analysis of specialized withholding data to identify compliance trends and potential workload) Staffing Senior Manager: Kimberly Schoenbacher (New York) 2 teams (Financial Intermediaries Team and Planning & Analysis Office) approx. 18 employees 6

7 Director of International Strategy The DIS position was created to drive LB&I s developing strategic approach to international tax enforcement Under our strategic operating model, any employee can play a role in developing and executing our international strategy The DIS is tasked with: developing and overseeing a knowledge management process by which all employees can share knowledge and strategic thinking developing and overseeing a strategic planning process that prioritizes employee contributions to arrive at one cohesive strategy for deploying resources against international compliance risk ensuring that technical training is available to support strategic assignments evaluating the effectiveness of these efforts and making any necessary adjustments 7

8 Deputy Commissioner (International) DCI Michael Danilack Assistant DCI Douglas O Donnell Director, Int l Strategy Diana L. Wollman Director, IBC Sergio Arellano Downers Grove, IL Director, IIC David Horton Downers Grove, IL Director, TPO Samuel Maruca 8

9 International Strategy Director, International Strategy Diana L. Wollman Senior Advisor for Training Strategy Margie Maxwell Austin, TX Senior Advisor for IPN Strategy Roula Karavtis New Haven, CT Remainder of Strategic Team under Development 9

10 Assistant Deputy Commissioner International Assistant DCI Douglas O Donnell Exchange of Information Nancy Wiltshire Overseas Operations Kelli Winegardner IITA Kelli Winegardner TAIT Dave Varley Program Manager Tina Masuda Foreign Posts JITSIC James D. Carroll JITSIC Team Mgr Cheryl A. Teifer Jacksonville, FL Tax Attaché - Tm 1 Dean Burke London, England Tax Attaché - Tm 2 Aziz Benbrahim Paris, France Tax Attaché - Tm 3 Thomas Stevens Frankfurt, Germany RSR Raul Pertierra Plantation, FL Tax Attaché - Tm 8 Chinchie Killfoil Beijing, China 10

11 International Business Compliance Director, IBC Sergio Arellano Downers Grove, IL Assistant to the Director Orrin Byrd Atlanta, GA DFO - East Jolanta Sander Chicago, IL DFO - West Sharon Porter Downers Grove, IL Intl Data Management Bill Holmes Foreign Payments Practice Ted Setzer New York, NY Intl Practice Networks Margie Maxwell Austin, TX Project Manager Khin Chow Downers Grove, IL Training Sohelia Crane (acting) Laguna Niguel, CA 11

12 Foreign Payments Practice Director, FPP Ted Setzer New York, NY Senior Advisor, Foreign Payments Manager, FPP Territory Manager, FPP Program Office Team Manager (CA) Team Manager (FL) Team Manager, Financial Intermediaries Team Manager (IL) Team Manager (NY) Team Manager (NJ) Team Manager (TX) Team Manager, Foreign Pmts Planning & Analysis 12

13 International Data Management Director, IDM Bill Holmes EA Operations Carolyn Morton Greensboro, NC EA Technical Carolyn Gray Sr Mgr Data Operations Barry Levine Hartford, CT Sr Mgr Data Services Mary Maruska Sarasota, FL 13

14 International Individual Compliance Director, IIC David Horton Downers Grove, IL Director of Field Operations Pam Drenthe Chicago, IL Central Withholding Agreement Judith McNamara Downers Grove, IL Intl Practice Network Roula Karavitis New Haven, CT Offshore Compliance Bryan Stiernagle Brooklyn Center, MN Nonresident Compliance Initiatives (PSP) Jeanne Fisher Greensboro, NC 14

15 Transfer Pricing Operations Senior Economic Advisors: Russell Kwait Bill Morgan Director, TPO Samuel Maruca Assistant to the Director Clifford Scherwinski Phoenix, AZ Senior Tax Advisors: Howard Berger Eli Hoory EA Operations Carla Langland Atlanta, GA Special Projects Stan Perry Atlanta, GA EA Technical Nanette Hamilton San Jose, CA APMA Richard McAlonan Transfer Pricing Practice Intl Practice Network John Kaffenberg Edison, NJ 15

16 Transfer Pricing Practice Director, TPO Samuel Maruca Territory Manager - East Matthew Hartman Reading, PA Territory Manager - Central Thomas Ralph Denver, CO Territory Manager - West Nancy Bronson San Francisco, CA 16

17 Advance Pricing Mutual Agreement Deputy Director Lisa J. Beard (acting) Deputy Director Hareesh Dhawale Director, APMA Richard McAlonan Assistant to the Director Lisa J. Beard APMA 1 Vacant APMA 2 Hareesh Dhawale (acting) APMA 3 Judith Cohen APMA 4 Peter Rock San Francisco, CA APMA 5 James McOmber APMA 6 Vacant APMA 7 John Hughes APMA 8 Kenneth Wood APMA 9 Patricia Fouts APMA 10 Dennis Bracken Los Angeles, CA APMA 11 Charles Larson APMA 12 Victor Thayer Los Angeles, CA 17

18 IRS Integrated International Program Across all of International, our compliance strategies, collaborative networks, training programs, and data management efforts are based on a foundational framework called the International Matrix 18

19 IRS Integrated International Program Training Strategy Bottom-up issue identification Strategy Metrics Strategic issue priorities Data and knowledge management construct Feedback / Examination Outcomes Training needs (ondemand and formal) Networks Risk indicators and possible data sources Data Training INTERNATIONAL MATRIX 19

20 The International Matrix The International Matrix is the foundation for the Integrated International Program Income Shifting Deferral Planning FTC Management Repatriation BUSINESS OUTBOUND Jurisdiction to Tax Income Shifting Inbound Financing Repatriation/ Withholding BUSINESS INBOUND Jurisdiction to Tax Foreign Tax Credits Foreign Corporations INDIVIDUAL OUTBOUND Pass-Thru Entities Offshore Arrangements US Business Activities Withholding INDIVIDUAL INBOUND Treaties Information Gathering Foreign Currency Organization/ Restructuring 20

21 Business Outbound Face Income Shifting IP Transfers High Value Services Risk Allocation Core Transfer Pricing Gain Exportation / Loss Utilization Inversions Deferral Planning STRATEGIC PRIORITIES Foreign Base Company Sales Issues Foreign Base Company Services Issues Foreign Personal Holding Company Issues Special Regimes Treaties Foreign Currency Information Gathering FTC Management Creditability Accessing FTCs Accessing FSI Organizations/Restructuring Repatriation Section 956 Issues Corporate Restructurings Other Strategies

22 Business Inbound Face Jurisdiction to Tax Income Shifting Inbound Financing Repatriation/ Withholding STRATEGIC PRIORITIES FCCs Transfer Pricing for FCCs Loans through low-tax affiliates FDAP Payments US Branches / PEs Hybrid Instruments Branch Profits Tax Agency US Branch / PE Allocations Cashless Debt Branch Level Interest Tax Branches / PEs Specialized Treatments Gain Exportation / Loss Utilization Foreign Parent Guarantees Other Strategies FIRPTA ECI through Partnerships Treaties Foreign Currency Information Gathering Organizations/Restructuring

23 Individual Outbound Face Jurisdiction to Tax Determination of Residency Status Taxation of Citizens and Residents Expatriation Possessions Foreign Tax Credits Creditability FTC Calculation / Limitation Foreign Corporations STRATEGIC PRIORITIES CFCs PFICs Treaties Foreign Currency Information Gathering Pass-Thru Entities Partnerships Trusts Disregarded Entities Offshore Arrangements Merchant Accounts Insurance Brokerage Accounts Offshore Banking Hedge Funds 23

24 Individual Inbound Face U.S. Business Activities Withholding STRATEGIC PRIORITIES Identification of a U.S. Trade or Business or Permanent Establishment (PE) Effectively Connected Income (ECI) Payments of FDAP FIRPTA Compensation from Employment ECI through Partnerships and Trusts Foreign Athletes and Entertainers Treaties Foreign Currency Information Gathering 24

25 International Practice Networks International Practice Networks (IPNs) Business Outbound Business Inbound Individual Outbound Individual Inbound Crossover Areas Income Shifting Outbound Jurisdiction to Tax Jurisdiction to Tax U.S. Business Activities Treaties Deferral Planning Income Shifting Inbound Offshore Arrangements Withholding Foreign Currency FTC Management Inbound Financing Foreign Tax Credits Information Gathering Repatriation Repatriation / Withholding Foreign Entities Organizations / Restructuring 25

26 International Practice Networks The IPNs are employee communities seeking to network in broad areas of international compliance Organized around the segments of the International Matrix, IPNs are the engine for international strategy, training, and data management International employees are regarded as experts on international issues, and the IPNs provide the tools they need to broaden, enhance, and share their expertise The IPNs provide international employees the opportunity to both learn from and teach their colleagues 26

27 IPN Steering Committees Each IPN is supported by a steering committee comprised of technical specialists, managers, and Division Counsel and ACCI attorneys The steering committee members manage the IPN and are dedicated to the collection, organization, and sharing of collective expertise The IPN steering committees are not authoritative bodies They do not issue guidance, advice, or determinations on issues associated with specific cases Rather, they facilitate collaboration and knowledge sharing among employees by managing the IPNs 27

28 The International Practice Service The IPS will be a central repository for the collective knowledge and expertise of our International staff Will consist of a library of practice units and other knowledge content organized around the International Matrix The IPS content will function in two ways: as a job aid and as components of a new international training program 28

29 Areas of Current Focus Offshore non-compliance Enforcement efforts OVDP FATCA implementation Exchange of information enhancements Mutual Agreement Program New MAP Forum APMA and new Rev. Proc. FTC creditability Transfer pricing compliance Withholding and information reporting compliance 1120F compliance 29

30 Areas of Current Focus Developing a comprehensive strategic planning process to address all critical international compliance risks Enhancing training programs Working better multilaterally Planning for the future 30