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IRS Eliminates Appeals Arbitration Program Due To Lack of Demand

September 9, 2015

The Internal Revenue Service has gotten rid of a rarely used program that was supposed to allow taxpayers to expedite the appeals process.

The IRS issued Revenue Procedure 2015-44, announcing the elimination of the Appeals arbitration program. The new revenue procedure obsoletes an earlier revenue procedure that formally established the Appeals arbitration program.


The IRS initially established the Appeals arbitration program as a two-year pilot program in 2000. A taxpayer and the Appeals function could jointly request binding arbitration on any issue that was left unresolved at the conclusion of appeals procedures or unsuccessful attempts to enter into a closing agreement under Section 7121 or a compromise under Section 7122 of the Tax Code. On October 30, 2006, the IRS published Rev. Proc. 2006-44, 2006-2 C.B. 800, which formally established the Appeals arbitration program.

This revenue procedure obsoletes Rev. Proc. 2006-44 and eliminates the Appeals arbitration program. During the fourteen-year period in which arbitration was available, only two cases were settled using arbitration. Given the general lack of demand for arbitration and the fact that its use as a tool to settle disputes without litigation has not proven successful, the IRS is eliminating the arbitration program.

Although Appeals arbitration is being eliminated, taxpayers may be eligible to request mediation for unresolved issues that remain after completion of settlement discussions in Appeals. See Rev. Proc. 2014-63, 2014-53 I.R.B. 1014.

The elimination of the Appeals arbitration program is effective the date the new revenue procedure is published in the Internal Revenue Bulletin, scheduled for Sept. 21, 2015.

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US BEPS Program Challenges

September 9, 2015

Congressional tax leaders Senate Finance Committee Chairman Orrin Hatch (R-Utah) and House Ways and Means Chairman Paul Ryan (R-Wis.) attacked and specifically targeted four of the fifteen OECD BEPS Actions:

  • Action 13, which would require country-by-country reporting. Such reporting would provide countries with very effective data comparability comparisons though the Masterfile process.
  • Action 4, which would curtail interest deductions;
  • Action 7, which would prevent the artificial avoidance of permanent establishment status;
  • Action 6, which would prevent artificial avoidance of the anti-abuse rules.   
Congressional tax leaders sought to exempt private companies having annual revenues of 750 million Euro or more from the clutches of the BEPS regime. Congressional tax leaders sought to modify BEPS program, ostensibly to make sure that changes would be “beneficial to American workers and job creators.”
 In contrast to the view of the Congressional tax leaders, the American Enterprise Institute scholar Aparna Mathur sought to disparage the entire BEPS program by overstating her assertion that Congressional tax leaders are “right to worry” about the potential impacts of BEPS proposals on American businesses and workers. Dr. Mathur states that tax evasion is minimal – We know better. She is not a CPA, an attorney, has an LLM in tax, or has any professional degree. The studies she cites are antiquated, relying on fact patterns no longer relevant.  In addition, Dr. Mathur confuses an aggregation of related-party transactions, an approach that the OECD approves, with aggregation of all transactions, an approach that the OECD rejects.(Feinschreiber, R. and Kent, M, Transfer Pricing Handbook: Guidance for the OECD Regulations (vol. 5), John Wiley & Sons, Inc., 2012, Chapter 6, pp. 57-68.)  It’s time for BEPS to move ahead.

Blog Post By Robert Feinschreiber, Esq. & Margaret Kent, Esq., Transfer Pricing Consortium.com; [email protected]

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Cayman Island Residents Challenge Tax Information Exchange with IRS

September 9, 2015

Two Cayman residents are challenging a decision by the Tax Information Authority to comply with a tax information exchange request by the U.S. Internal Revenue Service.
 

Lee and Sheila Aronfeld are naturalized citizens of the Cayman Islands but remain taxpayers in the United States, where they are subject to a criminal tax investigation, according to the court application.

Their application to file for judicial review claims that the Tax Information Authority was required to notify anyone whose rights would be affected by its decision to comply with the IRS request for information and that the failure to do so had infringed the applicants’ rights to privacy and a fair trial.

On July 22, the Tax information Authority served Cayman companies Tropical Trader Co II Ltd., Sir Turtle Building Co Ltd. and We Five Ltd. with a production notice. The notice did not provide any information about the nature and origin of the underlying tax information exchange request, but it identified the Aronfelds, who are shareholders of the companies, the court application states.

The request sought the production of “all company records including but not limited to all transactions pertaining to [the Aronfelds],” including financial records, account information and other contracts.

The lawsuit claims that the Aronfelds should have been notified and given an opportunity to be heard under the TIA Law “as a matter of fairness.”

The court application claims that recent amendments to the law in 2014 have created a new category of case where a criminal investigation is under way but proceedings have not commenced. In these circumstances, the tax authority is not required to apply to the court or to notify the individuals who are subject to the request.
 
“In eliminating any requirement for notice or judicial oversight in cases of criminal investigations the Section 8(4) Amendments and Section 17 Amendments were unconstitutional as contravening the rights of the Applicants and/or the [the companies that were served with the production notice] under Articles 7 and 9 of the Bill of Rights,” the application states.

The lawyers for the applicants said the production notices were unlawful, and they have asked Cayman’s tax authority for a copy of the tax information exchange request. 

The application for leave to file for judicial review is the latest legal test of Cayman’s tax information exchange framework.

In a judgment released in July following a hearing in April, the Court of Appeal upheld an earlier Cayman Islands Grand Court ruling that the Tax Information Authority had not followed all of its legal obligations before releasing the information to its Australian counterparts, following an application under the relevant Tax Information Exchange Agreement. 

In the initial 2013 judgment, Justice Charles Quin ruled that the Cayman Tax Authority had, among other things, failed to notify the parties subject to the information request and thereby infringed their rights to privacy and a fair and public hearing under the Cayman Islands Bill of Rights.

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Why Do People Bother Spending Several Thousand Dollars Having Wills or Trusts Drafted?

September 9, 2015

The basic answer to this question is that it enables people to feel assured that after they have passed, the fruits of their lifetime of labor will go to the parties they designate. Failure to create a will or trust will result in the distribution of one's assets based on the local jurisdiction's law of intestate succession. Unfortunately this is totally out of the control of the testator or grantor, ergo the will/trust to add a control factor to the disposition of one's assets from the grave.

Unfortunately many people who draft dispositive instruments are not true craftsmen. The result of what has been drafted often creates chaos and leads to estate litigation involving heirs or beneficiaries who believe that they were entitled to a larger "piece of the pie" or some specific asset which the decedent owned that they felt they were entitled to.

One broad classification of asset creates this problem if the drafter fails to add sufficient specificity to dispositive provisions. The area of concern relates to the distinction of tangible personalty versus intangible personalty. Occasionally we have seen situations where the failure to make this distinction leads to prolonged and very expensive litigation.

Tangible personalty is something that you can touch or hold, something with intrinsic value like a car, a watch, a diamond ring, or a fur coat. Intangible personalty is something that represents the value but cannot be held or touched, something with no intrinsic value like a stock brokerage account, the balance in a bank account, an IOU etc.

One area in which this distinction has caused problems is gold. Gold can be found in a number of different forms, and the exact form may dictate disparate results. Let's say that the testator leaves his personalty to his wife and his intangibles to his children. What happens when he has gold in several forms, bars and bouillon clearly being tangibles but what of gold certificates? Cases have been litigated over this type of distinction where testators/grantors failed to sufficiently fine-tune the distinctions between the forms of things like gold.

Additionally, this type of situation, how and where gold is kept can cause problems with the IRS in a format relating to the FBAR. The issue emerges as, "what is a financial account"? We find that in the law, based on a number of instances, great specificity is required to prevent potential subsequent problems amongst heirs or with the Internal Revenue Service. 


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Robert S. Blumenfeld  - Estate Tax Audit Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.

Robert S. Blumenfeld, Esq.

Read more at: Tax Times blog

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