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Reflections on My 66 Years in Public Accounting

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Reflections on My 66 Years in Public Accounting

Periodically in life, one comes across an individual who is best described as follows:  He or she “gets it.”  Difficult to describe analytically, in the tax world, the term means that (i) in solving technical problems, the person focuses the material, leaving the immaterial to others; (ii) in making decisions, the person can separate the important from the unimportant; and (iii) in advising others on the impact of a new accounting rule or provision of tax law, the person can digest the complex and explain it in a series of simple sentences.  Often, the individual is self-effacing.  Arthur J. Radin was all of the above.  He passed away in April.  In his memory, we are pleased to republish an article written for the CPA Journal describing the way professional accounting changed during his 60-year career and, more importantly, the way the world changed.  Arthur will be missed.

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Can Tax Authorities Demand Access to Audit Workpapers? Canadian Experience Follows U.S. Rule

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Can Tax Authorities Demand Access to Audit Workpapers? Canadian Experience Follows U.S. Rule

Recent victories in litigation have allowed the Canada Revenue Agency to review tax accrual workpapers of Canadian corporations, provided the request for access is not a “fishing expedition” attempting to find issues.In the U.S., the I.R.S. has enjoyed that power for many years. Sunita Doobay of Blaney McMurtry L.L.P., Toronto, examines the scope and limitations of the Canadian decisions. Stanley C. Ruchelman reviews case law in the U.S., the role of FIN 48, and the purpose behind Schedule UTP (reporting uncertain tax positions), which surprisingly is designed to limit examinations of tax accrual workpapers.

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Joint Audits: A New Tool for Cross-Border Tax Evasion

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Joint Audits: A New Tool for Cross-Border Tax Evasion

When a large corporate taxpayer receives an audit notification letter from the tax authority in its country of residence, the taxpayer typically knows what to expect: a lengthy process of documenting and defending its tax position. It also knows the process under domestic law for appealing adverse tax adjustments, and if cross-border issues are raised, it knows how to take advantage of Mutual Agreement Procedures between competent authorities under an income tax treaty. The full process can take years to resolve. Now, however, a pilot program between German and Italian tax authorities empowers a joint cross-border audit team to conduct a single joint audit of cross-border operations between the two countries. The joint audit is intended to be more effective for resolving issues of double taxation in cases involving complex facts related to (i) transfer pricing issues, (ii) residency or permanent establishment issues, and (iii) aggressive tax planning schemes. Marco Orlandi of Ludovici Piccone & Partners, Milan, examines the actual process followed in the pilot program and comments on whether the goals of the joint audit have been achieved.

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Managing a Transfer Pricing Exam? Wash Your Hands with Soap and Water

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Managing a Transfer Pricing Exam? Wash Your Hands with Soap and Water

For management of a U.S. subsidiary of a foreign parent, the process by which the I.R.S. conducts an examination of a tax return creates a heightened stress level.  It begins with the arrival of an information document request ("I.D.R.") for transfer pricing documentation, which often comes as a surprise to a company.  Typically, two or three years have passed since the close of the year under examination and little is recalled about transactions.  From there, the expressed positions of I.R.S. examiners and management often are at odds.  Drawing on many years of experience in defending intercompany transfer pricing policies, Michael Peggs takes a step back from the fray to examine how opposing, pre-conceived notions on both sides combine with the Semmelweis Reflex to exacerbate what should be a straightforward tax examination.

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LB&I Audit Insights: Using a Code §6038A Summons When a U.S. Corporation is 25% Foreign Owned

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LB&I Audit Insights: Using a Code §6038A Summons When a U.S. Corporation is 25% Foreign Owned

Code §6038A provides that a U.S. corporation that is 25% or more foreign-owned must provide the I.R.S. with information on certain transactions with its 25% foreign owner and any other foreign related party.  The goal is to obtain access to documents that are helpful in determining the correctness of the U.S. tax return.  In an I.P.U., LB&I explains how it plans to obtain documents held outside the U.S.  This may include a requested exchange under a tax information exchange agreement or a summons served on a domestic agent appointed to receive a summons that is enforceable abroad.  Galia Antebi and Stanley C. Ruchelman explain the process that will be followed by the I.R.S.

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I.R.S. LB&I Announces 13 New “Campaigns” for Audit Guidance

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I.R.S. LB&I Announces 13 New “Campaigns” for Audit Guidance

The I.R.S. Large Business and International (“LB&I”) Division has announced 13 issue-based campaigns targeting specific “Practice Areas” for audit and other enforcement activity.  The campaigns involve a combination of examinations, outreach, guidance, and other approaches.  Galia Antebi and Stanley C. Ruchelman look at the new I.R.S. approach to tax examinations in an age of increased complexity and limited budgets for examiners.

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P.A.T.H. Act Leads to Widespread Tax Changes

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Everyone likes Christmas presents and the P.A.T.H. Act delivers. It provides favorable tax treatment in the form of (i) F.I.R.P.T.A. exemptions for foreign pensions funds, (ii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on C.I.V. investment in R.E.I.T.’s, (iii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on foreign investment in domestically-controlled R.E.I.T.’s, (iv) a reduction in the time that must elapse in order to avoid corporate level tax on built-in gain when an S-election is made by a corporation after the close of the year of its formation, and (v) a permanent exemption from Subpart F income for active financing income of C.F.C.’s.

However, not all taxpayers benefitted from the Act. The P.A.T.H. Act increases F.I.R.P.T.A. withholding tax to 15%, adopts new partnership tax examination rules, and tightens rules regarding I.T.I.N.’s. Elizabeth V. Zanet, Christine Long, Rusudan Shervashidze, and Philip R. Hirschfeld explain these and certain other legislative changes.

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Congress Enacts Sweeping New Partnership Audit Rules

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Partnerships owning real estate or other assets sometimes take aggressive tax positions that may invite I.R.S. scrutiny. Philip R. Hirschfeld and Nina Krauthamer explain the new partnership audit rules enacted by Congress in November as part of the Bipartisan Budget Act of 2015. With limited exception, partnerships will become liable for tax increases arising from audit adjustments. This treatment raises the importance of tax indemnities when partnership interests are acquired.

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New Centralized Approach to International Audits

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Federal budget cuts have resulted in a new risk-based approach to international audits by the Large Business & International (“L.B.&I.”) division of the I.R.S.

On February 27, Sharon Porter, acting director of International Business Compliance within the L.B.&I., announced that the I.R.S. will “re-engineer” its approach to international audits and begin implementing a pilot program utilizing an experimental centralized method of risk assessment.

I.R.S. vs. O.E.C.D. – How Are Tax Authorities Planning to Conduct Your Next Transfer Pricing Audit

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This article addresses major developments in transfer pricing practice that will affect the way advice is given to clients and their ability to implement such advice. Over the past 15 months, the I.R.S. and the O.E.C.D. separately published transfer pricing audit and administrative initiatives that will significantly impact the way controlled transactions among related parties are reported. These initiatives are consistent with overall concerns raised in the Base Erosion and Profit Shifting (“B.E.P.S.”) Report of the O.E.C.D. Each stands independently of B.E.P.S. and will likely be unaffected by the ultimate actions plans implementing B.E.P.S. goals.

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