Daily Tax Update - November 3, 2016: TIGTA Releases Report on Transfer Pricing Audits

TIGTA Releases Report on Transfer Pricing Audits:  The Treasury Inspector General for Tax Administration (TIGTA) released a report on its audit of the IRS’s transfer pricing examination process.  TIGTA found that some IRS employees were not following the Transfer Pricing Audit Roadmap and that internal transfer pricing referrals may not be functioning properly.  The Transfer Pricing Audit Roadmap is intended to provide IRS examiners with audit techniques and tools to assist with the planning, execution, and resolution of transfer pricing examinations.  IRS management partially agreed with TIGTA recommendations to ensure that the roadmap is followed.

House Republicans Call for Withdrawal of Proposed Estate Tax Regulations:  Republican members of the House Committee on Ways and Means sent a letter to Treasury Secretary Lew calling for the withdrawal of proposed regulations under section 2704 that were released in August.  The proposed regulations would significantly limit the use of valuation discounts for gift and estate tax purposes.  The letter states that the proposed regulations “represent a dramatic change from past practice and history and are not consistent with congressional intent.”

DTU In Depth

Foreign Issuer Exclusion in Section 385 Regulations – Issues and Implications:  On October 13, the Treasury Department (Treasury) and the Internal Revenue Service (IRS) issued final and temporary regulations under section 385 (T.D. 9790).  As summarized in our prior update, the scope of the final regulations is reduced in several important and helpful respects as compared to the proposed regulations issued in April 2016.  Significantly, while the proposed regulations applied to all debt, whether issued by a US or foreign person, the regulations “reserve on all aspects of their application to foreign issuers,” thus avoiding the significant compliance burdens and numerous negative collateral tax consequences that would have resulted under the broader scope of the proposed regulations.  Click here for more in-depth coverage.