Tax Blog/Blawg

As our regular readers know, the expiration of a variety of tax provisions has been a topic of interest here at the TaxBlawg.  For readers who are interested in the issue, you may find useful the Tax Foundation's post reminding us of the federal tax provisions that are scheduled to expire at the end of this year as well as provisions that expired at the end of 2009.

One of our readers recently emailed us with a question about the application of the new Schedule UTP to deferred tax assets.  The question is straightforward enough: must uncertain positions involving deferred tax assets be reported on Schedule UTP and, if so, when must they be reported?  The explanation, thanks to confusion created by several examples in the final Schedule UTP instructions, is anything but straightforward.  Let’s start with a little background.

In an article to be published in State Tax Notes' December 6 issue, I argue generally that claims that high state taxes discourage economic development may be flawed because they look at statistics selectively and fall prey to the fallacy that correlation implies causation.  In particular, I consider an article by Arthur Laffer in the Wall Street Journal in October, in which data on personal income per capita do not appear to be consistent with the relevant government-issued data.  The Laffer article argued that the introduction of income taxes by various states over the past fifty years ...

There are a number of things that frustrate the Internal Revenue Service, ranging from not filing tax returns on time, not paying taxes when due, not providing sufficient estimated taxes, business failure to pay its employment taxes, entering into a "listed transaction," and generally saying bad things about the Agency.  Every year, IRC §6702 requires the IRS to publish a list to identify positions that it views as "frivolous" and subject to a penalty.  This year's list has been issued, and you may find it interesting.  We will try to cover the more interesting ones.

It seems that one of our favorite topics is back in the news: the sourcing of guarantee fees.  As reported in today’s Tax Notes, Robert Driscoll, withholding technical advisor for LMSB, was recently quoted as saying that guarantee fees might not be considered U.S.-source income if the guarantor is a qualified resident of a treaty country.  Amy S. Elliott, “Guarantee Fees May Not Be U.S.-Source if Guarantor Resides in Treaty Country, Official Says,” 2010 TNT 215-4 (Nov. 8, 2010).  According to the article, discussions within the IRS National Office have suggested that guarantee fees would probably fall under the “other income” article of the relevant treaty and thus would not be considered U.S.-source income in most cases.  Id.

Some of my clients would tell you that there never was such a thing as a “kinder, gentler” Internal Revenue Service, but over the years different attitudes have prevailed in that organization and yes, I can attest that there was an unquestionably kinder as well as gentler organization not long ago.  For a brief time in the late 1980s, when Lawrence Gibbs was Commissioner, he encouraged IRS employees to look upon taxpayers as their “clients.”  He left the position before he had been able to transform the attitude of the organization to something along those lines.  Following the passage of the IRS Restructuring and Reform Act of 1998, as well as a reorganization, the IRS once again went on a “charm offensive,” including regularly scheduled taxpayer service days to try to help taxpayers resolve problems that didn’t seem to be working out on their own.

A little over a month ago, our guest commentator, Dave Bernard, pointed out that a significant number of multinational companies have built up large stockpiles of cash in low-tax jurisdictions around the world.  While these stockpiles had been noticed by various journalists, Dave explained that the persistence of these stockpiles could largely be explained by U.S. tax policy, which discourages companies from repatriating cash earned abroad due to the earnings impact of bringing the money back to the U.S.

The Internal Revenue Service on Friday released the final version of the much-anticipated Schedule UTP (and accompanying instructions) as well as additional guidance about changes that had been made the schedule.  At the same time, the IRS also announced an expansion of the Compliance Assurance Program (CAP) as well as some other minor matters.  In the face of much criticism of the draft Schedule UTP and instructions, the IRS made a numbers of significant adjustments; however, several issues remain unresolved.

For most citizens of the United States, the thought of an IRS audit is probably scarier than a root canal or a colonoscopy without anesthesia.  As a result, people will be pleased to learn that the Internal Revenue Service is in fact "audited" itself, and sometimes doesn't like the results of those audits.

The notion of auditing the IRS is probably surprising.  Most taxpayers know that from time to time their local media doubtless has someone who will find a horror story about a widow who really didn't owe any taxes but is being harassed because of a mistake made by the IRS computer, and from time to time Congress occasionally exercises its oversight over IRS operations above and beyond asking the Commissioner what he's doing about closing the "tax gap."  But these contacts are sporadic, and there's a question about their effectiveness.

Judging by the feedback we receive from our readers, the topic of workpapers and work product continues to be an area of major concern for many tax practitioners.  For those who are interested in learning more about the topic, particularly in light of the D.C. Circuit's recent decision in United States v. Deloitte LLP, I will be speaking on a webinar panel, U.S. v. Deloitte: Expansion of Work Product Doctrine in Tax Controversies, next Tuesday at 1pm (EDT).  For prior TaxBlawg discussion of the Deloitte opinion, see here.

Together with Edward Froelich of Morrison & Foerster and Kevin ...