Category Archives: IRS Audits and Litigation

The IRS, as part of an overall strategy to rethink and reorganize interactions with taxpayers, has developed “International Practice Units (IPUs),” which are training aids that are intended to describe for Revenue Agents leading practices for specific international and transfer pricing issues and transactions.

As promised by the IRS, additional practice units have been published in 2016. The IRS Large Business and International (LB&I) division has published the following additional practice units concerning during 2016:

The practice units identify areas of strategic importance to the IRS, provide insight as to how examiners may approach various transactions, and can provide an understanding of the context in which an examiner is approaching a particular issue or transaction.

The practice units often discuss the theories and legal authorities for examiners to rely upon when challenging a particular transaction, and identify documents an examiner will request and review. The practice units also explain the relevance of what is being reviewed in order to allow the examiner to fully understand a particular transaction and the position taken by a taxpayer.

The IRS is warning its examiners of a new area of interest to look out for when examining corporate taxpayers. In a 4 new IPUs, the IRS outlines the audit steps for its examiners to follow in reviewing the "Outbound Transfers" involving a U.S. taxpayer:

03-07-2016	Residual Profit Split Method - Outbound	(PDF, 395KB)
03-04-2016	Review of Transfer Pricing Documentation by *Outbound Taxpayers	(PDF, 529KB)
03-04-2016	Outbound Services by US Companies to CFCs	(PDF, 247KB)
02-19-2016	Outbound Transfer of Foreign Stock Followed by Check-The-Box Election	(PDF, 351KB)

As seasoned Tax Defenders, 

we would advise you to Always take advantage 

of Knowing the IRS's Playbook!

It gives you an Advantage in Representing Taxpayers 
before the Internal Revenue Service!

Need an Experienced Tax Defender? 

Contact the Tax Lawyers at
Marini & Associates, P.A.

for a FREE Tax Consultation

at: www.TaxAid.us or www.TaxLaw.ms or

Toll Free at 888-8TaxAid (888 882-9243).

On Thursday, February 11, 2016 we posted IRS "Dirty Dozen" Tax Scams for 2015 we discussed that the Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season, where it stated that avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

 

"Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore," said IRS Commissioner John Koskinen. "We have voluntary options to help taxpayers get their taxes and filing obligations in order."

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.

Through the years, offshore accounts have been used to lure taxpayers into scams and schemes.

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Third-Party Reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and  partner jurisdictions, automatic third-party account reporting began in 2015,  making it less likely that offshore financial accounts will go unnoticed by the IRS.

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance.  As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

 

Contact the Tax Lawyers at 

Marini& Associates, P.A.  

 

for a FREE Tax Consultation

at: www.TaxAid.us or www.TaxLaw.ms or

Toll Free at 888-8TaxAid (888) 882-9243

 

 

 

 

On October 9, 2015 we posted LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit!, where we discussed that tax practitioners will face new questions from examination teams as the IRS selects compliance risks based on data, in the Large Business and International Division's (LB&I) move from individual audits of multinationals to broader considerations involving risk assessment.

While LB&I is scheduled to implement the new structure in early calendar year 2016, in recently released new International Practice Units (IPUs), the IRS has provided additional guidance to its examiners on the audit of foreign base company sales income (FBCSI), a category of subpart F income. These IPUs focus on supply chain structures with foreign sales and/or manufacturing branches (including disregarded entities) that may be used by U.S. multinationals to avoid the application of the FBCSI rules.

As part of LB&I International’s knowledge management efforts, Practice Units are developed through internal collaboration and serve as both job aids and training materials on international tax issues. For example, Practice Units provide IRS staff with explanations of general international tax concepts as well as information about a specific type of transaction.  In general, IPUs identify strategic areas of importance to IRS and can provide insight as to how IRS examiners may audit a particular issue or transaction. However, they are not official pronouncements of law or directives and cannot be used, cited, or relied upon as such.

Since Dec. 15, 2014, IRS has released various IPUs, covering major international tax areas some of which we've listed below:

2015
11-04-2015	License of Intangible Property from U.S. Parent to a Foreign Subsidiary	(PDF, 268KB)

10-29-2015

Sale by CFC to Unrelated Parties of Products Manufactured by Branch

(PDF, 225KB)

10-29-2015	Conducting Functional Analysis for Foreign Base Company Income (FBCI)	(PDF, 168KB)
10-29-2015	Concepts of Foreign Base Company Services Income	(PDF, 200KB)
10-29-2015	Branch Rules for Foreign Base Company Sales Income	(PDF, 222KB)
10-29-2015	Branch Sales to Unrelated Parties of Products Manufactured by CFC	(PDF, 216KB)

Click here for the complete list of IPUs.

Whether you're being audited by the IRS and want to know how the IRS will view your and/or your client's tax positions or whether you're doing tax planning in this area; it would be advisable to review any applicable IPU so that you know the IRS's audit position on that particular issue.

Are You Being Audited by the IRS ?

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 for a FREE Tax Consultation Contact US at

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243).