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LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit!

October 9, 2015

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.

As opposed to the exam team coming out and identifying what areas will be looked at; the issues will be per-identified for  the revenue agent. This change shifts the responsibility of selecting items to examine in an audit from the field agents to the revenue agents who are analyzing data in a centralized office. Exam teams will however, have the ability to raise other issues not identified from the data. LB&I Commissioner Douglas W. O'Donnell said that LB&I will be reorganizing its exam structure to save resources and create a more centralized approach.

A new organizational design will be put in place to facilitate transition to the new ways of doing business. The new LB&I will be organized around nine “practice areas.” Four of the practice areas will be organized geographically and appear to be structured similar to the current five industry directors with:

  • Directors of Field Operations (DFO) and 
  • Territory Managers (TM) constituting the management structure within the practice area.

The other five practice areas (or “PAs”) are delineated along technical or subject matter lines:

  • Pass-through entities
  • Enterprise activities
  • Cross-border activities
  • Withholding and international individual compliance
  • Treaty and transfer pricing operations

Similarly, it is envisioned that all of the International Examiners will likely be housed within at least two of the international practice areas.  It appears that at a strategic level, the subject matter practice areas will lead the development and coordination of the campaigns and treatments aimed at specific compliance risks.  At a tactical level, the design calls for them to also work directly with examiners from the geographic practice areas that are assigned specific issues to work.

 

This highlights the need to equip LB&I to operate competently in the fast evolving global tax administration environment which was one of the prime drivers of the new concept of operations. In explaining the new “concepts of operation” and organizational alignment, there are four guiding principles on which he said LB&I’s future success is predicated:

  • Flexible, well-trained workforce—developing deeper specialized knowledge and dynamic tools
  • Selection of better work—based on data analytics and real-time examiner feedback
  • Tailored treatments—a more flexible stream of options to address current and emerging issues
  • Integrated feedback loop—continual collection and analysis of data that permits more precise focus on the right compliance risks
Both federal and state Tax Administration Agencies 
must use their Limited Resources to achieve 
Maximum Taxpayer Compliance. 

Data Mining can help Tax Agencies 
Achieve Compliance Goals and 
Improve Operating Efficiency.

Managing an effective auditing organization involves many decisions.Each stage involves decisions that can increase or reduce the efficiency of the overall auditing program.

Texas and several other states, as well as tax agencies in the United Kingdom and Australia, rely on data mining to help find delinquent taxpayers and make effective resource allocation decisions. Data mining leverages specialized data warehousing systems that integrate internal and external data sources to enable a variety of applications, from trend analysis to non-compliance detection and revenue forecasting, that help agencies answer questions such as:

  • How should we split auditing resources among tax types?
  • Which taxpayers are higher audit priorities?
  • What is the expected yield from a particular audit type?
  • Which SIC codes are associated with higher rates of noncompliance?

Tax agencies have access to enormous amounts of taxpayer data. Most auditing agencies, in fact, draw information from these data sources to support auditing functions. Audit selectors, for example, search data sources for taxpayers with specific profiles. These profiles, developed by experts, may be based on a single attribute, such the taxpayer industry code (SIC), or on a complex combination of attributes (for example, taxpayers in a specific retail sector that have a specific sales-to-reported-tax ratio).

Data mining technologies do the same thing, but on a much bigger scale. Using data mining
techniques, tax agencies can analyze data from hundreds of thousands of taxpayers to identify common attributes and then create profiles that represent different types of activity. Agencies, for example, can create profiles of high-yield returns, so auditors can concentrate resources on new returns with similar attributes. Data mining enables organizations to leverage their data to understand, analyze, and predict non-compliant behavior.

Data mining is the exploration and analysis, by automatic or semiautomatic means, of large quantities of data in order to discover meaningful patterns and rules. Organizations use this information to detect existing fraud and noncompliance, and to prevent future occurrences.

This  recently announced restructuring of the IRS' LB&I is aiming to bring about a “cultural change” in the department, said Sergio Arellano, director of International Business Compliance for LB&I.

“Really, the change for us that is critical is that we're going to have a cultural change,” Arellano said. “We're going to have to focus on becoming an organization that is comfortable pre-identifying issues.”
As part of the restructuring, LB&I will create a new position, assistant deputy commissioner for compliance integration and will likely be dropping its continuous audit program for large taxpayers, Arellano said during a Sept. 18 panel discussion at the American Bar Association Section of Taxation meeting in Chicago.
Individual audits aren't the answer, Arellano said. “We can't audit our way out of our issues. We have to find different methods and different approaches.”
LB&I is scheduled to implement the new structure in early calendar year 2016.
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).

Sources
KPMG 
Bloomberg BNA
D Micci-Barreca

Read more at: Tax Times blog

Some Nonresidents with U.S. Assets Must File Estate Tax Returns

September 23, 2015

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets.

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.

Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

Having worked for the Internal Revenue Service for 32 years as a senior attorney in international estate tax, and having subsequently prepared several hundred nonresident alien estate tax returns (form 706NA) for aliens who died owning property in the US with a value in excess of $60,000, I am aware that many attorneys/accountants who prepare tax returns in this somewhat limited area (perhaps 1,200 to 1,500 filings per year) are not familiar with a number of tax savings devices which are not intuitively obvious. 

The most obvious device for reducing tax, is a tax treaty or convention between the United States and the country from which the decedent originated or was domiciled. Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.

However, this will not cover most countries since there are approximately 193 countries in the world and the treaties encompass about 20 of these countries. The bulk of the countries covered by treaty are in Europe, England, and Canada. The treaties themselves are very poorly written and difficult to understand so I would recommend that when you do use such a treaty, you also look at the interpretation of the treaty created by the Treasury Department so that mere humans can understand the incomprehensible.

Beyond treaties, there were a number of devices which exist, the purpose of which is to reduce the federal estate tax. The most prevalent of these is offered in section 2106, IRC, where one is invited to, by verifying the value of the gross estate outside the United States, take apportioned deductions for debts and expenses incurred worldwide by the decedent or his estate. Very critical to remember is the fact that the IRS must believe your depiction of the non-US assets and their fair market value. Many people come to me and said that they want to use a zero figure for the gross estate outside the United States and that the IRS will have to live with it. Wrong! If the IRS has even a scintilla of suspicion about the purported foreign assets or their value, the IRS will simply disallow all the debts and expenses.   

At that point, if you wish to continue to pursue the deductibility of the debts and expenses, you are required to prove both the expenses themselves and the fair market value of the assets which means, words that you don't like to hear, an IRS audit!  It is much easier to try to verify the value of the foreign assets as part of your due diligence and avoid a confrontation with an estate tax attorney. 

Community property is an area with rich rewards for the tax preparer; it is also very poorly understood. If the decedent lived in a country in which the presumption of marriage is community property of assets, all assets (except gifts and inheritances) obtained by the wedded couple become community property. When one of them dies, irrespective of title, one half of the assets are excluded from the estate since they are legally the property of the other person. Generally the IRS is somewhat skeptical about this claim so if I have an estate from which I wish to exclude a portion based on community property, I generally get an opinion of law from counsel in the country where the marriage occurred. 

The marital deduction-since the 1990s, the IRS is not allowed a marital deduction for property passing to a nonresident alien spouse. The criteria for this was that in virtually every instance, the nonresident alien would receive the assets, tax free, and leave the US, paying no tax on assets which had been sitused in the United States. Ergo, no more marital deduction. To try to soften this blow, Congress, in section 2056A, created the qualified domestic trust. The qualified domestic trust basically allows assets passing through a special trust to a nonresident alien spouse to qualify for a marital deferral. Each time the spouse removes assets from the trust, he/she, is required to file a form 706QDT. 


Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000. 

However, if the decedent made substantial lifetime gifts of U.S. property, and used the applicable $13,000 “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s U.S. situated assets is less than $60,000 at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). See Unified Credit (Applicable Credit Amount) Section in Publication 559, Survivors, Executors, and Administrators, and the Form 706NA Instructions for more information.

Have a US Estate Tax Problem?
 

Estate Tax Problems Require
an Experienced Estate Tax Attorney
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).

Robert S. Blumenfeld  - 
 Estate Tax 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.








Read more at: Tax Times blog

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.

Tax Problems?

Need To Appeal?



Contact the Tax Lawyers at 
Marini & Associates, P.A.  
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

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. 


Have an Estate Tax Problem?
 

Estate Tax Problems Require 

an Experienced Estate Tax Attorney


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).


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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