A Closer Look at the Procedural Tools Available to the IRS in International Examinations Involving Transfer Pricing

A Closer Look at the Procedural Tools Available to the IRS in International Examinations Involving Transfer Pricing

Tax Law
By Anthony Diosdi An exam of a multinational corporation tax return(s) will begin much the same manner as any other audit in that the taxpayer will receive a letter from the Internal Revenue Service or “IRS” notifying it of the audit. However, unlike a typical audit, the examiner will likely be specially trained to deal with issues involving controlled foreign corporations, cross-border transfers and reorganizations, transfer pricing, calculation of foreign tax credits, utilizing bilateral tax treaties, and the branch profits tax. Given the extraordinary complexity of these international provisions, special procedural issues may arise in multinational corporate audits that will not typically arise in an audit of an individual taxpayer or small business. This article explores the special procedural tools that are unique to an IRS examination of a multinational…
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Can Sections 7432 and 7433 be Used to Recover Damages from the IRS for the Collection of Section 3520, 5471, and 5472 Penalties?

Can Sections 7432 and 7433 be Used to Recover Damages from the IRS for the Collection of Section 3520, 5471, and 5472 Penalties?

Tax Law
By Anthony Diosdi The law permits the Internal Revenue Service or “IRS” to proceed with enforced collection actions on individuals or business entities that have outstanding legally assessed taxes or penalties. Enforced collection actions often include the filing of tax liens, the seizure income, bank accounts, and property to secure the payment of an outstanding federal tax liability. The IRS’s authority to proceed with enforced collect actions has its limitations. It must have statutory authority to assess and collect the tax or penalty at issue. The IRS has been aggressively automatically assessing penalties against individuals and businesses for failing to timely file Forms 3520, 5471, and 5472. The IRS’s legal authority to assess and collect these penalties have been questioned by the IRS Taxpayer Advocate and a number of nationally…
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How to Sue the IRS for Damages Associated with the Failure to Release a Lien

How to Sue the IRS for Damages Associated with the Failure to Release a Lien

Tax Law
By Anthony Diosdi The Internal Revenue Service or “IRS” often files liens on individuals or business entities that have outstanding assessments for taxes or penalties. An IRS lien can harm one’s finances, credit, and can even put a business in jeopardy. Sometimes the IRS fails to remove a lien after a liability has been satisfied or after the statute of limitations on collections has expired. On other occasions the IRS may erroneously file a lien associated with a penalty it may not have the legal authority to assess. This article discusses the procedure to obtain damages for the improper conduct by the IRS associated with the failure to release a lien when the circumstances warrant.Sovereign Immunity Limitation and Internal Revenue Code Section 7432The Internal Revenue Code permits limited types of…
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Litigating the Tax-Exempt Status of Private Foundation- An Overview of the Declaratory Judgment Process

Litigating the Tax-Exempt Status of Private Foundation- An Overview of the Declaratory Judgment Process

Tax Law
By Anthony Diosdi This article has two subsections. The first part of this article discusses the penalties associated with incorrectly operating a private foundation. The second part of this article provides an overview of the declaratory judgment process involved in the litigation of the tax-exemption status of a private foundation. Promoters of private foundations make private foundations sound like the perfect tax planning option. Here is how one promoter describes private foundations-“Private Foundation or Family Foundation (PF) can let you control your legacy, reduce your income taxes and impact your values to future generations. Family foundations provide living donors with flexibility as to the trimming of gifts. For instance, a donor may in one year have particularly high income and wish to take full advantage of the income tax deduction…
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Facing an IRS Section 965 Transition Tax Audit? Maybe a 962 Election Can Save the Day

Facing an IRS Section 965 Transition Tax Audit? Maybe a 962 Election Can Save the Day

Tax Law
By Anthony Diosdi Recently, the Internal Revenue Service or “IRS” launched a compliance campaign that targets individual compliance with the Section 965 transition tax through examinations and correspondences. The IRS announced it will be expanding Section 965 examinations. This article discusses the 965 transition tax and the use of a 962 election which could significantly reduce a transition tax assessment.The Section 965 Transition TaxInternal Revenue Code Section 965 imposes a one-time transition tax on a U.S. shareholder’s share of deferred foreign income of certain foreign corporation’s accumulated deferred foreign income of certain foreign corporation’s accumulated deferred foreign income or “ADFI.” Section 965 generally requires that, for the last taxable year of a foreign corporation beginning January 1, 2018, all “U.S. Shareholders of any controlled foreign corporation or “CFC” or other…
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Litigating a Case in Tax Court: A Litigation Tutorial

Litigating a Case in Tax Court: A Litigation Tutorial

Tax Law
By Anthony Diosdi The Internal Revenue Service or “IRS” audits hundreds of thousands of tax returns every year. At the conclusion of these tax audits, on many occasions, the IRS proposes to assess additional tax liabilities and penalties against the individual who was subject to the audit. These proposed adjustments could be wrong and the only way to contest the IRS’s proposed assessments without paying the liability is to petition the Tax Court. This article will discuss step-by-step how to contest an IRS audit before the United States Tax Court.Although there are exceptions to this rule, anyone considering disputing an audit result in Tax Court must wait until they are issued a notice of deficiency by the IRS. A notice of deficiency states the tax liability they believe a taxpayer…
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What Every Nonresident that Jointly Owns U.S. Property Should Know About the                                                      Federal Estate Tax

What Every Nonresident that Jointly Owns U.S. Property Should Know About the Federal Estate Tax

Tax Law
 By Anthony DiosdiFor an individual not domiciled in the United States, the gross estate subject to the estate tax consists of tangible and intangible assets located in the United States. Except as discussed below, a nonresident’s (for purposes of this article, the term “nonresident” refers to an individual not domiciled in the United States) gross estate is composed similar to that of a U.S. resident’s estate for purposes of the estate tax. That is, a nonresident’s gross estate for estate tax purposes consists of revocable transfers, transfers taking effect on death, transfers of a retained life interest and in some cases, transfers of U.S. situs property within three years of death are includible in the gross estate of estate tax purposes. With respect to jointly held property between spouses, a…
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Cross Border Conduit Financing and the Intricate Rules Governing These Transactions

Cross Border Conduit Financing and the Intricate Rules Governing These Transactions

Tax Law
By Anthony Diosdi It has been more than 30 years since Congress enacted Section 7701(1) of the Internal Revenue Code and the Department of Treasury (“Treasury”). These provisions authorize the Internal Revenue Service (“IRS”) to recharacterize any multiple-party financing transaction as a transaction directly between two or more parties if it is determined that reclassification is necessary to prevent the avoidance of U.S. tax. The regulations under Section 7701(1) on May 3, 1991, financing arrangements will be deemed a “conduit financing arrangement” that is subject to recharacterization. See Treas. Reg. Sections 1.871-1(b)(7), 1.881-3, 1.881-4, 1.1441-3(j), 1.441-7(d), 1.6038A-3(b)(5), and 1.7701(1)-1. Under these regulations, a conduit financing arrangement exists where an intermediate entity in a financing arrangement is a conduit. A “financing arrangement” consists of:“A series of transactions by which one person…
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An Overview of the Rules Governing Hybrid Arrangements

An Overview of the Rules Governing Hybrid Arrangements

Tax Law
By Anthony Diosdi The Tax Cuts and Jobs Act introduced two new Internal Revenue Code provisions targeting “hybrid arrangements.” The new Internal Revenue Code provisions include Section 245A(e), which denies a dividend received deduction under Section 245A with respect to hybrid dividends, and Section 267A, which denies certain interest or royalty deductions from hybrid transactions or hybrid entities. A hybrid arrangement generally seeks to exploit the differences in the tax treatment of a transaction or entity under the laws of two or more countries to secure double deductions, double exclusion from tax, or other tax benefits. The Tax Cuts and Jobs Act amendments to the Internal Revenue Code was a direct response to Action 2 of the Organization for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”)…
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A Brief Overview of the Form W-9 and W-8 for Purposes of Withholding

A Brief Overview of the Form W-9 and W-8 for Purposes of Withholding

Tax Law
By Anthony DiosdiThe United States taxes the gross amount of a foreign person’s U.S.-nonbusiness income at a flat rate of 30 percent. Any person having control, receipt, custody, disposal, or payment of an item of U.S. source income to a foreign person may have an obligation to withhold U.S. tax. A person who fails to withhold is liable for the uncollected tax. Consequently, anyone making payments to foreign persons or entities must ensure that the appropriate amount of tax is withheld and paid to the U.S. government. An individual withholding taxes must deposit the funds with a Federal Reserve bank or an authorized financial institution using a federal tax deposit coupon or by electronic transfer. The individual must also file Form 1042, Annual Withholding Tax Return for U.S. Source Income…
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