Wednesday, March 7, 2012

IRS to increase compliance through greater certainty/efficiency/cooperation

Doeren Mayhew 
IRS to increase compliance through greater certainty/efficiency/cooperation

The IRS is mitigating administrative tax risk to both taxpayers and the government by fostering greater certainty, consistency and efficiency in its programs and policies, Commissioner Douglas Shulman said in his keynote speech at the The Tax Council Policy Institute's recent symposium in Washington, D.C. in mid-February.

There are numerous programs already in effect through which taxpayers can communicate and work effectively with the IRS to clarify tax regulations, avoid or expedite audits, or otherwise increase compliance. These include the Compliance Assurance Process (CAP) program, which enables large corporate taxpayers to work on their returns with the IRS to resolve issues before filing; the Industry Issue Resolution (IIR) Program designed to resolve issues affecting numerous business taxpayers; the Fast Track Settlement, designed to streamline the audit process in a mediation setting; and the Uncertain Tax Position Initiatives through which large corporations report tax positions that affect their U.S. tax liabilities.

Shulman also stated that new guidance could often be instrumental in providing certainty for tax planners. He cited the example of the recent proposed regs that are intended to mitigate the restrictive required minimum distribution requirements from longevity annuities. "This guidance actually reduced uncertainty for a whole product class that could be used to help our seniors manage making sure that they don't run out of money in retirement."

International cooperation
Shulman highlighted the role of greater cooperation between international tax administrations in increasing compliance and reducing taxpayer burden in a multinational setting. Shulman cited an example of a joint audit conducted alongside a foreign tax administration. The audit and negotiations for the advance pricing agreement took six months rather than several years and, in the end, resulted in certainty for the taxpayer with respect to its future tax payments in all the relevant jurisdictions.

Tax administration
Meanwhile, IRS Deputy Commissioner for Services and Enforcement Steven Miller said the IRS has become more efficient, although it still seeks to improve its activity in transfer pricing and offshore enforcement. The IRS may also increase enforcement in passthrough entities and financial products.
In order to facilitate enforcement, the IRS may use certain data, such as that gleaned from credit card transactions and the information reported pursuant to the Foreign Account Tax Compliance Act (FATCA). The IRS will likely also leverage third party sources, such as tax preparers and whistleblowers, to aid compliance. Whistleblowers are a large boon to coporate tax compliance, with 44 percent of whistleblowers involving large corporate taxpayers.

Contact Doeren Mayhew for more information.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.

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