IRS Announces Adjustments to the Compliance Assurance Process Program

IRS Announces Adjustments to the Compliance Assurance Process Program: Today, the IRS announced changes to its Compliance Assurance Process (CAP) program for 2019. The proposed changes for 2019 include the following:

• The 2019 application period will open October 1, 2018 for eligible, existing CAP taxpayers.  
• Taxpayers will be required to provide, in their applications, a preliminary list of material issues for the year, including specified transfer pricing issue information and research credit information, if applicable. 
• Taxpayers and LB&I will be subject to additional requirements concerning effective communication and prompt resolution of issues, including that certain transfer pricing issues may be required to be resolved via the Advance Pricing Agreement program and disagreements will be sent to Appeals on a timelier basis to encourage quick resolution of issues.
• Taxpayers will be required to provide a representation letter within 30 days of return filing and timeframes will be implemented for IRS post-file review.
• As part of Compliance Maintenance, some taxpayers determined to be lowest risk may continue in the program without IRS review of a particular year.

For future years, the IRS anticipates additional changes, including that CAP will be open to additional taxpayers who meet eligibility criteria and program requirements, taxpayers will be required to provide certification of a tax control framework, and issue-based resolutions may become part of the program.  

Treasury Department, IRS Release Guidance Regarding Computation of Effectively Connected Net Investment Income Under Section 842(b): The Treasury Department and the IRS released Revenue Procedure 2018-45, which provides the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under section 842(b).  

Tax Court Rules Against Long-Term Lessee Seeking Charitable Deduction for Conservation Easement: In Harbor Lofts v. Commissioner, the US Tax Court was asked to decide whether Harbor Lofts satisfied the requirements of section 170(f)(3)(B)(iii), specifically by contributing a perpetual conservation restriction. Harbor Lofts is a long-term lessee of buildings and land owned by Economic Development Corp. Harbor Lofts sought a charitable contribution for the 2009 tax year for a noncash contribution of a façade easement under section 170(f)(3)(B)(iii) and (h)(2)(C). In order to qualify under for a qualified conservation contribution, (i) the property must be a qualified real property interest, (ii) the property must be contributed to a qualified organization, and (iii) the contribution is exclusively for conservation purposes, as defined under the statute. While the Court agreed Economic Development Corp. satisfied these three requirements, the Court found that Harbor Lofts did not. The Court held that Harbor Lofts was a time-limited lessee and as such, it was incapable of making a contribution protected in perpetuity. Harbor Lofts failed to meet the requirements of the statute and did not qualify for the charitable contribution deduction. The full opinion can be found here.

TIGTA Releases Audit Report Regarding Compliance With Prohibition of the Use of Illegal Tax Protestor and Similar Designations: The Treasury Inspector General for Tax Administration (TIGTA) released its audit report titled “Fiscal Year 2018 Statutory Audit of Compliance With Legal Guidelines Prohibiting the Use of Illegal Tax Protestor and Similar Designations.” The audit is completed yearly as required by the IRS Restructuring and Reform Act of 1998 and was enacted by Congress because of a concern that some taxpayers were being permanently labeled as illegal tax protestors, even though they had subsequently become compliant with the tax laws. TIGTA made no recommendations with this year’s report. For more information, please click here and here.

TIGTA Releases Audit Report Regarding Compliance With Notifying Taxpayers of Their Rights When Requested to Extend the Assessment Statute: TIGTA released its audit report titled “Fiscal Year 2018 Statutory Audit of Compliance with Notifying Taxpayers of Their Rights When Requested to Extend the Assessment Statute.” TIGTA is required by law to determine annually whether the IRS complied Section 6501(c)(4)(B), which requires that the IRS provide notice to taxpayers of their rights to decline to extend the assessment statute of limitations or to request that any extension be limited to a specific period of time or specific issues. In this year’s report, TIGTA recommended that the IRS Deputy Commissioner for Services and Enforcement work with the Office of Appeals and the Large Business and International, Small Business/Self-Employed, and Tax Exempt and Government Entities Divisions to ensure that management or authorized officials verify that notification was provided to all taxpayers and authorized representatives, for both joint and other returns, and that notice was properly documented. The IRS agreed with TIGTA’s recommendation and will update the applicable Internal Revenue Manual section accordingly. For more information, please click here and here.