IRS Consolidates Transfer Pricing Programs and Bolsters International Coordination

On July 27, IRS officials announced restructuring changes aimed at improving its international operations.  First, the Advance Pricing Agreement (“APA”) Program and Mutual Agreement Program (“MAP”), will consolidate under a single executive in the Large Business and International Division.  Second, the IRS is creating a new position, the Assistant Deputy Commissioner (International), to facilitate agency coordination with treaty partners amid an increasingly global environment.

The New “Advance Pricing and Mutual Agreement Program”

The APA Program is concerned exclusively with reaching pre-filing agreements with taxpayers on transfer pricing.  However, the lengthy APA process can exceed 40 months for a small business, which deters many candidates from using the service.  Until now, the MAP was separately concerned with the bilateral resolution of transfer pricing disputes with U.S. treaty partners.  Now, the APA Program will shift from the Office of Chief Counsel to consolidate with the MAP in the Large Business and International Divisions international operation.  The combination, which aims to reduce processing times, was recently announced at a transfer pricing conference where practitioners and IRS officials discussed solutions to the problematic APA delays.  Read our coverage of APAs and the transfer pricing conference here. 

The new “Advance Pricing and Mutual Agreement Program” will have increased staffing available and should allow the IRS to more efficiently handle APA agreements and transfer pricing disputes with treaty partners.  Although the combined program will be headed by a single executive, the Office of Chief Counsel will remain a vital partner in the analysis and resolution of legal issues.

Assistant Deputy Commissioner for International Coordination

Next, the IRS plans to adjust its competent authority and international coordination functions under an Assistant Deputy Commissioner (International).  The new commissioner will be responsible for coordinating international activities, exchanges of information, and participation in the Joint International Tax Shelter Information Center (JITSIC). The Assistant Deputy Commissioner (International) will also pursue competent authority agreements with treaty partners on issues other than transfer pricing and support the Department of the Treasury in its negotiations of tax treaties and tax information exchange agreements.  With respect to non-governmental organizations, the commissioner will coordinate participation at the Organisation for Economic Cooperation and Development (OECD) and other programs.

Ideally, these two organizational changes will effect more cohesive transfer pricing operations and successful coordination with treaty partners.  IRS Commissioner Don Shulman announced, “These latest changes move forward to fulfilling one of my top priorities”meeting the challenge of tax administration in a global economy.”

At Fuerst Ittleman, we stay current on pressing legal and administrative issues to ensure your peace of mind.  For more information, email an attorney at contact@fidjlaw.com.

Tax Court Clarifies Deductibility of Long-Term Care Expenses

Long-term health care can be expensive, but fortunately many of those expenses are tax deductible.  Two recent Tax Court decisions shed light on when such caregiver services are deductible.  In Estate of Lillian Baral, 137 T.C. 1 (2011), the Court held that payments to non-medical caregivers are deductible as long as the patient is “chronically ill” and the doctor deems that caregivers are necessary due to the patients illness.  Second, in Estate of Olivo v. Commr, T.C.M. 2011-163, the court ruled that caregiver services given to a family are presumed to be gratuitous without a written agreement to the contrary. 

Ordinarily, under IRC § 213, certain unreimbursed medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income. In 2012, the threshold will rise to 10 percent of adjusted gross income. Medical expenses can include amounts paid for diagnosis, cure, mitigation, treatment, or prevention of disease, and amounts paid for qualified long-term care services.  Id.

Estate of Lillian Baral

In Estate of Lillian Baral, an elderly Lillian Baral was diagnosed with dementia.  Baral, 137 T.C. at 4. Because Ms. Barals physician determined that she required 24-hour care, her brother hired unlicensed caregivers to provide the prescribed assistance.  Id. at 5.  The IRS later argued that the $49,580 expense did not qualify as a deductible long-term health care expense.  Id. at 7. 

Following her death, Ms. Barals estate appealed the matter to the Tax Court.  The Tax Court held that the services provided by the caregivers were “necessary” services, “provided pursuant to a plan of care prescribed by a licensed practitioner,” and therefore were qualified long-term care services under IRC § 7702B(c) and qualified medical expenses under IRC § 213(d)(1)(C). Id. at 12.

Estate of Olivo v. Commissioner

In Estate of Olivo v. Commr, Anthony Olivo nearly abandoned his struggling legal practice to provide full-time care for his mother, the decedent. Olivo at 3. Mr. Olivo kept meticulous records of the extensive care he provided, which lasted approximately from 1993 to 2004. Id. at 5. According to Mr. Olivo, the decedent offered to pay him for his services; they orally agreed on a rate of $400 per day, to be paid after her death.  The agreement was never reduced to writing.  Id. at 10.

Subsequently, on the estates tax return, Mr. Olivo claimed for the estate a $44,200 statutory administrators commission, $50,000 estimated attorneys fees, and a $1,240,000 debt owed to him as compensation for his caregiver services. Id. at 7. Mr. Olivo subsequently became the administrator of the estate.  When the IRS disallowed the deduction, he filed a petition with the Tax Court.

The Tax Court agreed with the IRS.  Because Mr. Olivo could not provide any evidence other than his own self-serving oral testimony as proof of the agreement with the decedent, the Tax Court rejected Mr. Olivos $1.240 million compensation claim.  The Court held that, without corroborating evidence of the alleged agreement, the estate was not entitled to deduct the Mr. Olivos claim for compensation pursuant to the agreement. Id. at 12.

Alternatively, Mr. Olivo argued that he was entitled to compensation under quasi-contract.  Applying New Jersey law, the Court presumed that “services rendered to a family member living in the same household are rendered gratuitously.” Id. at 14. Here, too, the Court found that Mr. Olivo failed to satisfy his burden of proving the oral agreement by “clear and convincing evidence” or even by the less exacting “preponderance of the evidence” standard.  Id. at 15.

Thus, even though Mr. Olivo took extraordinary care of his mother during her final years, the estate was not entitled to deduct the medical compensation expense, and Mr. Olivo was not entitled to claim compensation for his services.  However, if he had taken time to properly memorialize the alleged agreement, the Court might have ruled differently.

These two Tax Court cases are noteworthy because they clarify which medical expenses are deductible and how you can plan such expenses more advantageously for yourself or for a family member.   Moreover, Olivo reiterates the need to be prudent about keeping written records of all agreements, especially where estate matters are concerned.

The attorneys at Fuerst Ittleman have a wealth of experience in all areas of tax planning and asset protection.  To find out more, contact an attorney at contact@fidjlaw.com. 

Beda Singenberger Charged with Swiss Account Conspiracy

Swiss financial advisor Beda Singenberger, 57, was charged with helping more than 60 U.S. taxpayers hide over $184 million in Swiss bank accounts and then avoid U.S. authorities by moving assets from UBS AG to other Swiss banks. The indictment came on the same day that U.S. authorities separately charged several Credit Suisse bankers with helping Americans evade taxes and nearly 2 ½ years after UBS paid a $780 million penalty settlement with the U.S. to avoid prosecution.

According to the indictment filed last Thursday in Manhattan federal court, Singenberger, a Certified Public Accountant, conspired to hide clients income from the IRS from 1998 to 2009. To further his conspiracy, in 2001 he allegedly began creating sham corporations, “foundations, and “establishments,” under the laws of Hong Kong, Liechtenstein, and other foreign jurisdictions to conceal accounts. Several of these entities were named in earlier federal cases against UBS clients.

Then, upon learning in 2008 that U.S. authorities were investigating UBS, Singenberger allegedly helped his U.S. clients move their funds to other Swiss banks without a physical U.S. presence. According to the indictment, he also provided various Swiss banks with fictitious IRS forms which stated that undeclared accounts at those banks were not U.S. clients.

Beda Singenberger operated the wealth management and tax advisory business called “Sinco Treuhand AG” (“Sinco”), which surfaced in connection with an August 2004 internal UBS memo that was released by the U.S. Senate Permanent Subcommittee on Investigations in 2009. The memo sent to Sinco stated, “We invite you to make a short presentation on the structures/vehicles that you recommend to U.S. and Canadian client who do not appear to declare income/capital gains to their respective tax authorities.”

If convicted, Beda Singenberger may face prison time and monetary penalties.

The upswing in indictments signals that U.S. enforcement against hidden offshore accounts is in full force, and that any taxpayers with undisclosed accounts should strongly consider taking part in the Offshore Voluntary Disclosure Initiative before the August 31, 2011 deadline.

The attorneys at Fuerst Ittleman have the expertise to guide you through any voluntary disclosure or Bank Secrecy Act compliance matter. Contact an attorney today at contact@fidjlaw.com.

U.S. Indicts Three Credit Suisse Bankers

Last Thursday, Federal prosecutors filed charges against Markus Walder, Susanne D. Rüegg Meier, Andrea Bachmann, and Josef Dörig for conspiring with other Swiss bankers to defraud the United States. The superseding indictment implicates the three Credit Suisse bankers and Swiss trust founder along with four other defendants who were charged February 23, 2011. Although the indictment refers to an “International Bank” and not Credit Suisse, details of the information point directly to the Swiss banking giant. The new charges mount pressure on offshore bankers and taxpayers alike as the U.S. toughens its stance on foreign banks that help Americans evade their taxes.

Credit Suisses managers and bankers are charged with engaging in illegal cross-border banking activities that were designed to help U.S. customers evade their income taxes by opening and maintaining secret bank accounts. Furthermore, the defendants allegedly utilized a representative office in New York City to provide unlicensed and unregistered banking services to U.S. customers with undeclared accounts. The defendants and others allegedly made false statements and provided misleading information to the Federal Reserve Bank of New York and to the IRS to conceal Credit Suisses cross-border banking business.

Specifically, the superseding indictment alleges the following:

  • Markus Walder, former head of North America Offshore banking and former senior Credit Suisse official, supervised the cross-border banking business;
  • Susanne D. Rüegg Meier, former Credit Suisse manager, provided unlicensed and unregistered banking services to U.S. customers with undeclared accounts at the bank;
  • Andrea Bachmann, former banker at a subsidiary of Credit Suisse, traveled to the United States to assist taxpayers in evading their U.S. taxes through the use of secret bank accounts; and
  • Josef Dörig, founder of the Swiss trust Dorig AG, was a preferred provider of Credit Suisse who assisted U.S. customers in forming and maintaining nominee tax haven entities and opening secret accounts at the bank and its subsidiaries in the names of the entities.

According to a Department of Justice press release ,

The defendants and their co-conspirators [allegedly] caused U.S. customers to travel outside the United States to conduct banking related to their secret accounts; opened secret accounts in the names of nominee tax haven entities for U.S. customers; accepted IRS forms that falsely stated under penalties of perjury that the owners of the secret accounts were not subject to U.S. taxation; advised and caused United States customers to structure withdrawals from their secret accounts in amounts less than $10,000 in an attempt to conceal the secret accounts and the transactions from American authorities; mailed bank checks in amounts less than $10,000 to customers in the United States; and advised U.S. customers to utilize offshore charge, credit and debit cards linked to their secret accounts and provided the customers with such cards, including cards issued by American Express, Visa and Maestro.

The superseding indictment charges that as of 2008, the Swiss bank held thousands of secret accounts for U.S. customers. Of the 35 clients cited, one “secretly transported approximately $250,000 cash from the United States to Switzerland by concealing the money underneath [her] clothes in pantyhose wrapped around [her] body.”

Last Thursdays indictments bring the total number of indicted Credit Suisse bankers to seven. The charges signal that U.S. investigations of hidden offshore accounts remain in full force, and that any taxpayers with undisclosed accounts should strongly consider taking part in the Offshore Voluntary Disclosure Initiative before the August 31, 2011 deadline.

The attorneys at Fuerst Ittleman have the experience to guide you through any voluntary disclosure or Bank Secrecy Act compliance matter. Contact an attorney today at contact@fidjlaw.com.

World-Check Comments On Money Laundering Risk Presented By Venezuela

As Venezuela continues to destabilize, anti-money laundering and Bank Secrecy Act compliance officers must take notice of the increased risks associated with doing business with corporations and banks located in the there. A destabilized Venezuela could result in a litany of AML and regulatory compliance issues ranging from money laundering to Iranian and Cuban Sanctions programs violations. On July 16, 2011, World-Check, one of the largest and most well respected business risk intelligence services in the AML community, issued a newsletter highlighting some of the greatest areas of concern and urging those in AML compliance to exercise “enhanced due diligence” when transacting business with Venezuela. A copy of World-Check’s newsletter can be read here.

As World-Check described in its report, the Venezuelan government recently announced that it will be selling $1.5 billion worth of dollar denominated bonds to the public. According to World-Check, the bond sale poses several risks for regulatory compliance officers. The bonds provide an easy way for money launderers to turn ill-gotten and illicit criminal proceeds, often in Bolivars or other South American currencies, into financial instrument that can be redeemed for US Dollars. As a result, there is a heightened risk that US dollars that make their way from Venezuela to US financial institutions will be the proceeds of criminal activity. World-Check advises that US financial institutions which accept US dollars from Venezuela must ensure not only that their AML compliance programs are designed to face such threats, but also that their employees are properly trained to ensure that these transactions receive increased due diligence.

Another cause for concern stems from Venezuela’s close relationships with Cuba and Iran. Iran and Cuba are subject to U.S. economic sanctions which prohibit or severely restrict trade and business with both countries. For example, the Iranian Transaction Regulations not only prohibit U.S. persons from “financing, facilitating, or guaranteeing” goods, technology or services to Iran, but also prohibit U.S. persons from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction performed would be prohibited under the IRT if performed by a U.S. person. See 31 C.F.R. §§ 560.206, 560.208. Additionally, the Cuban Assets Control Regulations prohibit the purchase, transport, import, or dealing in any merchandise: 1) of Cuban origin; or 2) is or has been located in or transported from or through Cuba; or 3) is made or derived in whole or in part of any article which is the growth, produce, or manufacture of Cuba. See 31 C.F.R. § 515.204. The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury administers and enforces economic sanctions programs.

On July 20, 2011, World-Check addressed a new concern for AML compliance officers when evaluating the risks of doing business with Venezuela: the potential for Cuban nationals to obtain fake Venezuelan passports. As explained by World-Check: “If American bankers open accounts for a Cuban national, relying upon a bogus Venezuelan passport, they violate OFAC sanctions in force against Cuba. Cuba is on the US list of State Supporter of Terrorism, and American companies and individuals cannot conduct any transactions with its nationals or entities.” World-Check’s July 20, 2011 newsletter can be read here.

As a result of the breadth and complexity of these regulatory schemes, although businesses may not directly engage in trade with Iran or Cuba, businesses may unknowingly violate OFAC sanctions because of the nature of their relationships with Venezuelan businesses who do. Examples of this can be read in our previous reports here and here. If you have questions pertaining to the OFAC sanctions on trade with Cuba and Iran, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.

FinCEN Releases Final Rule Clarifying Money Services Businesses Definitions, Includes Foreign-located MSBs Doing Business in U.S.

On July 18, 2011, the Financial Crimes Enforcement Network of the United States Department of the Treasury (“FinCEN”) issued a final rule amending the Bank Secrecy Act (BSA) implementing regulations regarding Money Services Businesses (“MSBs”). The rule clarifies which businesses qualify as MSBs and are thus subject to the anti-money laundering regulations of the BSA. A copy of FinCENs press release can be read here.

Under current BSA regulations, businesses that meet one or more of the definitions of a MSB must comply with applicable BSA requirements. Businesses which qualify as MSBs under BSA regulations include: currency dealers, currency exchangers, check cashers, money transmitters as well as sellers issuers and redeemers of travelers checks, money orders, or stored value.

The rule makes several changes to MSB regulations starting with the definition of an MSB itself. The definition of MSB has been rephrased to state: “[a] person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States” in one or more of the capacities listed above. The new rule clarifies that it is the activities performed by a business within the US which will cause it to be classified as an MSB regardless of that businesses location.

Additionally, the new rule makes foreign-located businesses engaging in MSB activities within the US subject to BSA regulation. As a result, even foreign based MSBs with no physical presence in the US can be classified as an MSB and thus subject to the rigorous requirements of the BSA. However, foreign banks as well as foreign financial agencies that engage in activities that if conducted in the US would require them to be registered with the SEC or CFTC are excluded from the definition of an MSB. As noted in the rule, “To permit foreign-located persons to engage in MSB activities within the United States and not subject such persons to the BSA would be unfair to MSBs physically located in the United States and would also undermine FinCENËœs efforts to protect the U.S. financial system from abuse.”

The rule also replaces the terms “currency dealer or exchanger” with “dealer in foreign exchange” and clarifies what services will qualify for this MSB category. Although the BSA uses the term “currency exchange,” FinCEN has interpreted the Act as intending to cover the underlying activities involved in foreign exchange services, including the exchange of instruments other than currency. As a result, “dealer in foreign exchange” will be defined as: “A person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $ 1,000 for any other person on any day in one or more transactions, whether or not for same-day delivery.” This new term and definition makes clear that exchanges within the US of currency, funds, or monetary instruments wholly between foreign currencies still classify a business as an MSB and subject to BSA regulation.

FinCENs new rule also provides for several changes to the definition of “check casher” in an effort to more accurately describe which activities are covered. First, the rule splits the definition of “check casher” into two paragraphs, the first defining what activity is considered “check cashing” and the second listing exclusions from the definition. Second, FinCEN has now incorporated the redeeming of monetary instruments into its definition of “check cashing.” As a result businesses engaged in redeeming monetary instruments, including money orders and travelers checks, will be considered a check casher if it also redeems checks for currency or a combination of currency and monetary or other instruments. “Check cashing” is now defined as: “A person that accepts checks (as defined in the [UCC]), or monetary instruments in return for currency or a combination of currency and other monetary instruments in an amount greater than $1,000 for any person on any day in one or more transactions.”

The new rule amends existing MSB regulations by separating the provisions concerning stored value from those concerning issuers, sellers, and redeemers of travelers checks and money orders. FinCEN separated out the stored value provisions in anticipation of additional changes to be made regarding stored value in FinCENs Prepaid Access Rulemaking. See our previous report for more information regarding FinCENs Prepaid Access Rulemaking. The rule also combines the previously separate categories of issuer of travelers checks and money orders and seller of travelers checks and money orders into one category.

The rule also provides for several changes to the definition of “money transmitter” and exclusions from its coverage. While substantive, these changes incorporate years of FinCEN issued guidance and administrative rulings regarding examples of activities which would not classify a business as a money transmitter, even though the business engaging in such activities may be involved in accepting and transmitting funds. A complete copy of the new rule can be read here.

If you have questions pertaining to the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Democratic Senator Challenges Tax Shelters and Offshore Havens

Senator Carl Levin (D-Mich) unveiled legislation last week that seeks to limit offshore tax loopholes and strengthen American enforcement capabilities. The senator has introduced similar measures in the past, but is hopeful that Washingtons current focus on the deficit will carry his latest proposal “over the goal line.”

Amid concerns about $100 billion in lost annual tax revenues and the resulting burden on middle America, the bill aims to give the Treasury department new tools to collect its share. One section would authorize the Treasury Secretary to take special enforcement measures against uncooperative offshore institutions. Another section would create rebuttable presumptions to give the IRS more power over offshore entities. Other provisions seek to define foreign companies with most of their management or operations in the U.S. as domestic companies for tax purposes. Additionally, the bill would require multinationals to provide the Securities and Exchange Commission with basic information about its operations in other countries, for example, its number of employees and tax obligations.

The bill would also make all credit default swaps (“CDS”) that originate in the U.S. subject to U.S. taxation. Currently, CDS payments are taxed according to where the money is sent, meaning not all swaps sourced in the U.S. are taxed here. The bill would deem CDS funds deposited into U.S. accounts as taxable distributions by the foreign subsidiaries to their U.S. parents.

One particular feature of the bill would toughen penalties on tax shelter promoters and aider and abettors of tax evasion by increasing the maximum fine to 150% of any illegal gains.

The bill, entitled the Stop Tax Haven Abuse Act, is supported by a wide array of small business, labor, and public interest groups, including the Financial Accountability and Corporate Transparency (FACT) Coalition, American Sustainable Business Council, Business for Shared Prosperity, and others.

Read about other features of the Stop Haven Abuse Act on Sen. Levins website.

Although Sen. Levin was unable to estimate how much tax revenue his bill would recover, he wants any new revenues to be used for paying down the deficit. “Offshore tax abuses are not only undermining public confidence in our tax system, but increasing the tax burden on middle America,” stated Levin. “People are sick and tired of tax dodgers using offshore trickery and abusive tax shelters to avoid paying their fair share.”

The attorneys at Fuerst Ittleman are current and knowledgeable on todays pressing tax issues. If you have any domestic or offshore tax concerns, email an attorney at contact@fidjlaw.com.

General Reinsurance Corp. Settles With OFAC Over Alleged Violations of Iranian Transactions Regulations

On June 29, 2011, the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury announced that it had reached a settlement with General Reinsurance Corporation (“General”) over alleged violations of the Iranian Transaction Regulations (“ITR”). The alleged violations of the IRT highlight the broad reach and complexity of the sanctions on trade with Iran. General information regarding economic sanctions against Iran can be found at OFACs website here.

The ITR, which are found at 31 C.F.R. part 560, were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC. 31 C.F.R. § 560.206 prohibits U.S. persons from “financing, facilitating, or guaranteeing” goods, technology or services to Iran. Additionally, 31 C.F.R. § 560.208 prohibits U.S. persons from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction performed would be prohibited under the IRT if performed by a U.S. person.

Similar to our previous reports of IRT settlement agreements, although General did not directly engage in business with Iran, due to the nature of its business relationships with other entities who were engaged in business in Iran, General was found to be in violation of the IRT. OFAC alleged that the violations consisted of two reinsurance claim payments to the Steamship Mutual Underwriting Association Limited for losses arising from vessel operations of the National Iranian Tanker Company which Steamship Mutual insured. According to OFAC, General made these excess of loss claim payments pursuant to its facultative reinsurance obligation to Steamship Mutual for the coverage period of June 16, 1998 to February 20, 2002. (Reinsurance is an insurance policy taken out by an insurance company on an insurance policy. Reinsurance is usually purchased by the original insurer to mitigate its own risks associated with payment of policies. The reinsurance is used to cover and pay the original policy. In a facultative reinsurance agreement the reinsurer assumes all or part of the risks associated with a particular policy.) Consequently, due to the broad reach of the IRT, and even though General had no direct business relationships with any Iranian business, Generals reinsurance activities were deemed by OFAC to be a violation.

OFAC announced that General has paid $59,130 in penalties for its violations. According to OFAC enforcement guidelines, the base penalty associated with such a violation is $131,424. However, this penalty was lowered because: 1) General voluntarily disclosed its violations and substantially cooperated with OFAC; 2) General is the largest reinsurer in the United States; 3) the violations were the result of personnel violating Generals policies and procedures; and 4) General has not previously been subject to OFAC penalties. Additionally, General has installed enhanced sanctions compliance software and implemented new training programs regarding sanctioned transactions. A copy of OFACs announcement can be read here.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com

IRS Sets Partnership, Estate and Trust Filing Extension at 5 Months

The IRS recently released final regulations reducing the filing extension from six months to five months for certain pass-through entities, including most partnerships, estates, and trusts. Under these new regulations, the extended returns and Schedules K- for partners and beneficiaries will generally be due September 15. TD 9531 also finalized an automatic six-month extension for pension excise returns.

Before 2005, pass-through entities were entitled to an automatic three-month extension of time to file certain returns and could also request an additional three-month extension of time to file. In 2005, the IRS issued temporary regulations in TD 9229 simplifying the extension process by allowing most taxpayers, including pass-through entities, to obtain an automatic six-month filing extension. In 2008, the IRS released final and temporary regulations in TD 9407 granting an automatic six-month filing extension for non-pass-through entities and reducing the 2005 automatic filing extension for certain pass-through entities from six months to five months.

Recognizing the inherent conflict between providing sufficient time for pass-through entities to prepare returns and ensuring that owners and beneficiaries receive timely information returns for their own filings, the 2008 regulations requested comments on whether a five-month extension of time to file for pass-through entities might increase or reduce overall taxpayer burden. The IRS received approximately 70 comments.

The comments proposed a broad range of solutions, including moving the individual taxpayer return due date to April 30 or allowing individuals and corporations a seven-month filing extension. Some commentators suggested moving up the filing date for pass-through entities to March 15, which would allow such entities a full six-month extension to file by September 15 while providing timely information for individual taxpayers to prepare their own returns. However, tax return due dates are set by statute and IRC § 6081 bars extensions greater than six months. Thus, absent legislative action, none of the above comments are viable options for a regulation. Nevertheless, the majority of commentators agreed that an extension for pass-through entities shorter than six-months would reduce overall taxpayer burden, although there was no consensus as to the optimal extension period.

Many commentators expressed concern that corporate taxpayers with ownership interests in pass-through entities would see no relief with the proposed extension. They projected that the five-month extension period would simply align the extended due date for pass-through entities with the extended due date for corporate returns. The resulting delay to corporate owners would greatly increase the need for filing amended returns.

Ultimately, the IRS believes that a five-month automatic extension “reduces the overall burden on taxpayers and strikes the most reasonable balance for all affected taxpayers” and thus finalized the temporary regulations without change.

The attorneys at Fuerst Ittleman, PL have the requisite knowledge and experience to handle the most complex regulatory and compliance matters. You can reach an attorney at contact@fidjlaw.com.

Strategies for Resolving Uncertain Tax Positions

As the deadline nears for reporting Uncertain Tax Positions (“UTPs”) to the IRS, practitioners and organizations continue to protest the lack of guidance on various disclosures. Speaking in a webcast on June 28, a PricewaterhouseCoopers representative relayed that the firm is specifically concerned with what it means to record a reserve and how to treat non-GAAP taxpayers. Similarly, the Tax Executives Institute recently called on the IRS to address issues like filing requirements and transfer pricing. Amid all of this uncertainty, we present pre-filing strategies”as suggested by BNA”for resolving future uncertain tax positions.

Read our recent posts here and here for a full explanation of what it means to have a reportable “uncertain tax position.”

Ideally, a company achieving greater tax certainty will benefit from resolving issues more efficiently and by recording lower unrecognized tax benefit liability, which translates into less accrued interest expense. A company under the watch of the IRSs Large Business and International Division has a number of pre- and post-filing tools available to settle UTP issues expediently.

Pre-filing options include:

  • Industry Issue Resolutions (IIR). This program presents an opportunity for business taxpayers, industry associations, and other interested parties to negotiate with the IRS for over a frequently disputed or burdensome tax issue. Upon reaching a resolution, the IRS will typically issue formal guidance memorializing it as such.
  • Pre-Filing Agreements (PFA). Eligible taxpayers can use the PFA program to request that the IRS examine a completed transaction or event that has not yet been reported. The underlying issue must be primarily factual rather than legal.
  • Advance Pricing Agreements (APA). These binding agreements between a taxpayer and the IRS are targeted at resolving complex transfer pricing issues. Read more about recent APA initiatives here.
  • Compliance Assurance Programs (CAP). Under this growing program, participants work with IRS coordinators to review transactions occurring throughout the year, conferring more certainty about their tax returns before filing.

Post filing programs are referred to in the Internal Revenue Manual (IRM) as “alternative dispute resolution programs.” The developing programs are designed to ease the examination process by using collaborative procedures, limiting examinations to narrow issues, where possible, and to fast-track the settlement and resolution processes. According to the IRM, these post-filing methods will be considered in all examinations and implemented where appropriate.

The attorneys at Fuerst Ittleman are experts at resolving complex tax and regulatory issues. If you have a taxing matter on your hands, email us at contact@fidjlaw.com.