Webinar Slides: Eye on Washington - Quarterly Business Tax Update, Q2 2018

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CBIZ & MHM
Executive Education Series™
Eye on Washington: Quarterly Tax Update
(2nd Quarter 2018)
Steve Henley, Bill Smith, Nathan Smith and Don Reiser
August 14, 2018

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Disclaimer
The information in this Executive Education Series
course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further
discuss the impact on your business.

Presenters
Steve has 30 years experience in serving the tax needs of clients in a
variety of industries including retail, distribution and manufacturing,
services, technology and communications. In serving as lead tax
engagement executive, Steve’s focus is identifying and executing value
creating strategies to meet the needs of his clients in a variety of
technical areas, such as revenue recognition, acceleration of deductions,
research and experimentation credits, state and local tax minimization,
M&A tax structures, international tax planning and tax implications of
compensation programs.
770.858.4443 • shenley@cbiz.com
Stephen C. Henley, CPA
National Tax Practice Leader

Bill Smith is a managing director in the CBIZ National Tax Office. Bill
monitors federal tax legislation and consults nationally on a broad range
of foreign and domestic tax services for businesses and individuals. He is
frequently sought after by a myriad of media outlets to comment on the
changing tax environment and its effects on companies and individuals.
He has authored numerous tax articles, edits the CBIZ MHM InTouch
newsletter and federal Tax Alerts, and lectures on a broad range of tax
topics across the country.
301.961.1943 • billsmith@cbiz.com
William M. Smith, Esq.
Managing Director,
CBIZ National Tax Office
Presenters

Nathan Smith is a Director in the CBIZ National Tax Office, bringing over
19 years of experience in public accounting to provide technical support
and strategic solutions for the firm’s tax practice. Nathan leads the
development of practice aids and tactical approaches used in
responding to industry and Federal tax developments in a variety of
subject matter areas. Nathan also consults nationally to facilitate
delivery of client service opportunities and solutions, contributes as an
author and editor to the firm's tax thought leadership publications and
assists with the development and implementation of national tax
policies and procedures.
727.572.1400 • nate.smith@cbiz.com
Nathan Smith, CPA
Director
Presenters

Don Reiser serves as the National Leader of the International Tax
Practice for CBIZ. He has more than 30 years experience providing
international tax consulting services to public and privately-held U.S. and
foreign-based corporations as well as foreign individuals and businesses
investing in the United States. Working closely with clients that span a
variety of industries, Don addresses a broad range of domestic and
foreign tax matters.
212.790.5724 • dreiser@cbiz.com
Don Reiser
Managing Director

Agenda
Legislative
03
01
04
Judicial
International
02 Administrative

The Cost of Tax Reform Compliance
• IRS released estimates for increased compliance costs
related exclusively to the new QBI deduction
• 25 million hours
• $1.317 Billion over 10 years
• 10 million taxpayers directly affected
• Extra 2.75 hours for 8.8 million PTEs that flow through
to individuals
• Extra .67 (2/3) hour for 1.2 million PTEs to aggregate
trade or business reporting
• Practitioner response: IRS “underestimates the
amount of intrusiveness and time these regulations
will occupy”

LEGISLATIVE

Tax Reform Phase II – Indexing Capital Gains
• Treasury Secretary Mnuchin told the NY Times earlier this
month that Treasury was looking at whether it could sidestep
Congress to allow capital gains to be indexed to inflation.
• Indexing capital gains to inflation means the original purchase
price of a capital asset, e.g., stock, would take inflation into
account
• Effectively increases purchase price, making the difference
between that and the selling price smaller, ultimately reducing
the tax bill
• An anonymous White House official said they are apparently
aware the plan would face an immediate legal challenge and
has a narrow chance of being sustained.
• In another sign that the effort was largely confined to Treasury,
White House Chief of Staff John Kelly wasn't actively seeking
the change as of July 30, a White House official said.

ADMINISTRATIVE

20% Qualified Business Income Deduction - Recap
• Qualified business income is defined as business
income from domestic sources (including Puerto Rico)
from a qualified trade or business, excluding
investment income (investment interest income, most
dividends, capital gains, commodities gains, and
foreign currency gains)
• A qualified trade or business means any trade or
business other than a specified service trade or
business, and other than the trade or business of
being an employee

20% Qualified Business Income Deduction - Recap
• A specified service trade or business means any trade
or business involving the performance of services in
the fields of health, law, accounting, consulting,
athletics, financial services, brokerage services, or any
trade or business where the principal asset of such
trade or business is the reputation or skill of one or
more of its employees or owners, or which involves
the performance of services that consist of investing
and investment management trading, or dealing in
securities, partnership interests, or commodities
• Engineering and Architectural services are not
included in specified services, leaving them fully
eligible for the deduction

20% QBI Deduction: Specified Service Trades or Businesses
• New regulations in §1.199A-5 provide definitional
guidance in determining what ancillary services fall
within or beyond the enumerated list of Service
Professions in §199A(d)(2).
• The catch-all phrase “any trade or business where the
principal asset of such trade or business is the
reputation or skill of one or more of its owners or
employees” was narrowly defined in (§1.199A-
5(b)(2)(xiv)
• Solely tied to a person who receives licensing,
endorsement, or appearance fees

20% QBI Deduction: Services or Property Provided to a SSTB
• In §1.199A-5(c)(2)(i), drafters directly addressed the
so-called “Crack ‘n Pack” strategy:
• “An SSTB includes any trade or business that provides
80 percent or more of its property or services to an
SSTB if there is 50 percent or more common ownership
of the trades or businesses.”
• Even in situations where use by the SSTB falls below 80
percent, whatever percentage of use allocable to the
SSTB is treated as part of the SSTB

20% QBI Deduction: Wage and Reasonable Compensation
• The deduction is limited to the greater of
• (a) 50 percent of W-2 wages (wages including bonuses, elective
deferrals, and deferred compensation), or
• (b) 25 percent of W-2 wages plus 2.5 percent of qualified
property
• Excludes guaranteed payments from a partnership
• W-2 wages do not include amounts that are not properly
allocable to qualified business income.
• Appeared to exclude reasonable compensation paid to an S
corporation shareholder from the definition of W-2 wages
• In an important clarification, the proposed regulations clarify
that the wages of a shareholder/employee of an S corporation
are included in W-2 wages for purposes of the wage and wage
plus property limits even though not included in QBI.
• This creates an inequity between partnerships and S
corporations.

20% QBI Deduction: Unadjusted Basis
• Does not include bonus depreciation or 179
deduction
• Cost basis
• Property contributed in a nonrecognition transaction
will generally have a carryover basis
The unadjusted basis rules focus on the cost of the
property when it is acquired and placed into service,
any improvements are tracked as separate pieces of
property.

20% QBI Deduction: Aggregation
• Aggregation between similar businesses allowed
• Common control and common activity tests must be met
at the entity level
• Decision to aggregate or not made at individual level
The aggregation rules provide a taxpayer friendly result that
allows taxpayers to receive the maximum possible benefit
of the QBI deduction even if non-tax factors led to a multi-
entity structure that would have produced a lower
deduction were the entities considered separately.

20% QBI Deduction: Aggregation
• To aggregate:
• Each entity must be a “trade or business”
• The same person or group of persons must constitute
majority ownership of each entity and entities must
have same taxable year
• None of the entities may be an SSTB
• At least 2 of the following factors must be met
• Businesses provide similar products and services
• Businesses share common facilities or personnel
• Businesses are operated in coordination with each other

20% QBI Deduction: Netting
• Netting takes place at the individual level
• Taxpayers must net income (loss) from multiple
activities before applying wage and property limits
• Wages and property allocable to loss entities is not
included when calculating these limits
Netting is only required if the taxpayer does not
aggregate. The taxpayer will have to determine which
will provide a more favorable result

20% QBI Deduction: Trusts
• Special rules also prevent a different planning idea
• IRS permitted to treat multiple trusts as a single trust
• Applies existing rules to do so
Many tax planners advocated a strategy of creating
multiple trusts to avoid the 199A limitations however
the regulations bar this if the goal of the multi-trust
structure is the avoidance of tax (i.e. only to maximize
the deduction).

Bonus Depreciation Regulations
• Recap of statute (Section 168(k))
• 100% bonus depreciation for qualifying property placed
in service after Sept. 27, 2017
• Applies to used property for first time
• Qualifying property must have a useful life of 20 years
or less
• Original use must be with the taxpayer (defined)
• Generally doesn’t apply to ADS property
• Unavailable for real property trade or business that has
elected out of the business interest limitation

• The regulations restate that for the property to be
eligible, it must:
• Be of a specified type;
• The original use requirement must be met;
• The placed in service date must fall within the
timeframe specified in the code; and
• The property must have been acquired after Sept. 27,
2017
• Ineligible property includes
• property depreciated using ADS, and
• property that is subject to a floor-plan financing
arrangement

• Original Use -- Used property may not have:
• Been used by the taxpayer or the taxpayer’s
predecessor at any point prior to the acquisition;
• Been acquired from a related party in a transaction
where the taxpayer received a carryover or stepped-up
basis; and
• Any portion of the basis of newly acquired property
determined by reference to any other property.
• Basis Adjustment
• Must reduce basis acquired property to account for any
prior depreciable basis.
• Property acquired by gift or inheritance is not eligible

• Partnership elections – No basis step up for:
• § 754 election (generally used to equalize a new partner’s
inside and outside basis) if the basis increase is obtained
under Section 734 (resulting from transactions where the
partnership redeems all or a portion of a partner’s interest
in the partnership) – fails original use requirement.
• Section 704(c) remedial allocation method
• Property distributed by a partnership to a partner because it
is acquired from a related party with carryover basis.
• Step Up Allowed:
• A Section 743(b) adjustment made pursuant to a Section
754 election (relating to certain transfers of a partnership
interests among partners) will increase affected partner’s
basis for bonus depreciation.

• Anti-abuse provisions:
• Members of a consolidated group
• For bonus depreciation purposes, each member of the
group has a depreciable interest in all property held by
current or previous members of the group.
• Related parties
• Focus on direct transfers between related parties (clearly
ineligible), and
• Transfers utilizing an intermediary to avoid the direct
transfer prohibition.

QIP
• On a much anticipated issue, the IRS avoided discussion of
a widely publicized legislative drafting error that left
qualified improvement property (QIP) ineligible for bonus
depreciation after Dec. 31, 2017.
• IRS concluded the change requires Congressional action.
• For some businesses, there is a slight reprieve for
improvements placed in service during the final quarter of
2017, as the drafting error does not affect 2017 activities.
• Essentially, qualified real property placed in service after
Sept. 27, 2017 and before Jan. 1, 2018 qualifies at least for
50 percent bonus depreciation, and possibly 100 percent.

When Modeling, Don’t Forget Excess Business Loss Limits
• Business losses for non-corporate taxpayers (such as
individuals) are limited to $250,000 per year
($500,000 for joint returns) for tax years beginning
after Dec. 31, 2017, and before Jan. 1, 2026
• This limitation applies to the aggregate of all personal
and pass-through losses for the year
• This effectively prevents individuals from deducting
losses from partnerships and S corporations in excess of
these levels
• Disallowed losses are added to the individual’s net
operating loss carryforward

Substantiating Charitable Contributions (New Regs. July 27, 2018)
• The contemporaneous written acknowledgement (CWA) from the donee organization
(includes private foundations) must contain:
• A description (but not the value) of any property contributed
• Whether the donee organization provided any goods or services in consideration for
the contribution
• A description and estimate of value of any goods or services provided by the donee
organization in consideration for the contribution
• If the donee organization provided intangible religious benefits, a statement to that
effect
• In any event, the AMVETS tax receipts do not contain a “description * * * of any
property * * * contributed.” Sec. 170(f)(8)(B)(i). Rather, petitioner created, at a time
that cannot be ascertained, a spreadsheet showing the property he allegedly
contributed, and there is no evidence that this spreadsheet was ever provided to or
seen by AMVETS. Moreover, the only evidence as to the contemporaneity of the
acknowledgment is the date—August 30, 2009—which petitioner placed on the blank
receipts himself. This evidence is not sufficiently persuasive to satisfy his burden of
proof. ... Petitioner has therefore failed to satisfy the “contemporaneous written
acknowledgment” requirement for substantiation of contributions of $250 or more.
(Smith v. Comm’r, T.C. Memo. 2014-203)

Property Contributions of $5,000 or More
• Must be substantiated by:
• The same documentation required for property contributions
of $500 or more, plus
• A qualified written appraisal, and
• An appraisal summary signed by the appraiser and the donee
organization and attached to the tax return (Section B of Form
8283)
• $5,000 threshold is applied per item or group of similar
items. Contributions do not need to be to same donee if
similar items of property
• $5,000 of books donated to 3 different schools would still
require appraisal

Property Contributions of $5,000 or More
• Petitioner contends that he donated property to AMVETS
on August 30, 2009, with a claimed value of $27,767.
Because the value of the claimed contribution exceeds
$500, we must aggregate “similar items of property” to
determine what substantiation was required. Petitioner's
self-created spreadsheet shows three categories of similar
items: clothing with an alleged value of $14,487; household
furniture with an alleged value of $11,730; and electronic
equipment with an alleged value of $1,550. For all three
categories of items, petitioner must meet the
substantiation requirements imposed by section 170(f)(8)
and (11)(B). For the first two categories of items, petitioner
must also meet the stricter substantiation requirements
imposed by section 170(f)(11)(C). (Smith v. Comm’r, T.C.
Memo. 2014-203)

The Regulations (§1.170A-16) New Regs. July 27, 2018
(d) Substantiation of charitable contributions of more than $5,000
(1) In general .— Except as provided in paragraph (d)(2) of this section,
no deduction is allowed under section 170(a) for a noncash
charitable contribution of more than $5,000 unless the donor—
(i) Substantiates the contribution with a contemporaneous written
acknowledgment (as described in section 170(f)(8) and §1.170A-
13(f));
(ii) Obtains a qualified appraisal (as defined in §1.170A-17(a)(1))
prepared by a qualified appraiser (as defined in §1.170A-17)(b)(1));
(vi) The cost or other basis, adjusted as provided by section 1016;
(vii) A statement explaining whether the charitable contribution was
made by means of a bargain sale and, if so, the amount of any
consideration received from the donee for the contribution;

The Regulations (1.170A-16)
(4) Appraiser declaration .— The appraiser declaration referred
to in paragraph (d)(3)(iii) of this section must include the
following statement: "I understand that my appraisal will be
used in connection with a return or claim for refund. I also
understand that, if a substantial or gross valuation
misstatement of the value of the property claimed on the
return or claim for refund results from my appraisal, I may be
subject to a penalty under section 6695A of the Internal
Revenue Code, as well as other applicable penalties. I affirm
that I have not been barred from presenting evidence or
testimony before the Department of the Treasury or the
Internal Revenue Service pursuant to 31 U.S.C. section 330(c)."

The Regulations (1.170A-16) – More than $500,000
(e) Substantiation of noncash charitable contributions of more than
$500,000
(1) In general .— Except as provided in paragraph (e)(2) of this section, no
deduction is allowed under section 170(a) for a noncash charitable
contribution of more than $500,000 unless the donor—
(i) Substantiates the contribution with a contemporaneous written
acknowledgment (as described in section 170(f)(8) and §1.170A-13(f));
(ii) Obtains a qualified appraisal (as defined in §1.170A-17(a)(1)) prepared by
a qualified appraiser (as defined in §1.170A-17(b)(1));
(iii) Completes (as described in paragraph (d)(3) of this section) Form 8283
(Section B) and files it with the return on which the deduction is claimed;
and
(iv) Attaches the qualified appraisal of the property to the return on which
the deduction is claimed.
(3) Substantiation requirements for carryovers of noncash contribution
deductions. The rules in paragraphs (c), (d), and (e) of this section
(regarding substantiation that must be submitted with a return) also
apply to the return for any carryover year under section 170(d).

The Courts
• Durden v. Comm’r, T.C. Memo 2012-140
• Failure to strictly follow donee acknowledgement letter
requirements, including timing (filing or due date of return) and
whether goods and services provided
• Bond v. Comm’r, 100 T.C. 32 (1993)
• Substantial compliance: All information required in qualified
appraisal contained in Form 8283
• RERI Holdings I, LLC v. Comm’r, 149 T.C. No. 1 (2017)
• Taxpayer acquired real property in 2002 for $3 million, and 17
months later donated at $33 million.
• Appraisal summary showed that it acquired the property by
purchase in 2002 but it showed no amount for the donor's cost or
other adjusted basis
• Invalid summary – taxpayer loses

The Remedies?
Provide substantiation later?
Subsequent qualified appraisal?
9100 Relief?

Final Regulations for New Partnership Audit Rules
• When an entity serves as PR, a designated
individual must be appointed for the entity
• Partnership, not the entity, must appoint the
designated individual of the entity
• Disregarded entity can serve as PR
• Partnership itself can serve as PR
• May be advantageous because partnership already
has fiduciary duty under state law to act in best
interest of the partners
• Designated individual does not have to be a partner
or even an employee of the partnership

•Regulations clarified to provide that a
PR can engage a person to act on
behalf of the PR through a Power of
Attorney
• POA individual can participate in meetings
and receive copies of correspondence
• POA appointment does not make the POA
appointee the PR

•Change to PR can now be made at the time
the partnership is notified that it was
selected for exam
• Previously could be done only when Notice
of Administrative Proceeding was mailed,
which would mean the old PR would still be
part of the first portion of the exam
• Also gives partnership time to decide on
one PR for multiple exam years in the event
different PR’s were selected previously

•A change to a PR is now effective
immediately upon receipt of a
revocation or resignation letter by the
IRS
•Previously the effective date was 30
days after IRS receipt of the letter,
giving rise to potentially hostile actions
from a former PR

•A PR who resigns no longer is permitted
to designate a successor, where the
partnership is now the only party that
can do so
•Previously a resigning PR could
designate a successor that was
unacceptable to the partnership
•Also, resignation no longer can occur
with the filing of an AAR

•A partnership’s PR revocation can now
be signed by any partner with the
capacity to do so, regardless of whether
that partner was a partner on the last
day of the year
•Previously this authority was limited
only to general partners on the last day
of the year

•When IRS designates a PR because no
valid designation is in effect, IRS not
allowed to select IRS employee or
agent unless such person also is a
partner in the partnership
•Even on this case, IRS will avoid doing so

• ALL partnership and LLC agreements need to be
amended so that partner rights are protected under the
new audit rules
• Will the opt-out election be required or prohibited?
• Under what circumstances will the partnership permit a
PR to resign?
• What criteria will the partnership use to designate a PR?
• Will the push-out election be required or prohibited?
• Will partners have a say in modification choices
encountered during an exam, and if so how will the
choice be made?
• Will the PR be required to notify the current and former
partners about key exam stages, or whether there is an
exam?

JUDICIAL

State Tax Nexus: South Dakota v. Wayfair Inc.
Quill Corporation v. North Dakota (1992)
• Physical presence is needed to satisfy the Commerce Clause
“substantial nexus” requirement for sales and use taxes
• The physical presence standard in simple terms requires a retailer
to have physical presence in a state before that state can impose
sales tax collection requirements on the retailer's in-state sales.
• Interpretation of the "substantial nexus" standard that existed
under the broader Constitutional criteria for taxation in the
United States first enunciated in Complete Auto Transit, Inc. v.
Brady (1977), which held that a tax must:
• Apply to an activity with a substantial nexus with the taxing State;
• Be fairly apportioned;
• Not discriminate against interstate commerce; and
• Be fairly related to the services that State provides.

South Dakota v. Wayfair, Inc. (USSC, June 21, 2018)
• Proliferation of online retail business since the Quill
decision allows a vast number of merchants without
physical presence in a state to sell goods or services that
are "free" of sales tax.
• Consumers are required in these circumstances to remit
use tax on their purchases; however, compliance under
this self-assessment system is notoriously low.
• States lose between $8 and $33 billion every year as a
consequence of this framework, where ". . . the
impracticability of [this] collection from the multitude of
individual purchasers is obvious."

South Dakota v. Wayfair, Inc. (USSC, June 21, 2018)
• Holding: Quill overturned; physical presence no longer
necessary
• The physical presence rule "is not a necessary interpretation" of
the requirement that an activity must have a substantial nexus
with the taxing State;
• The physical presence rule "creates rather than resolves market
distortions;" and
• The physical presence rule is an "arbitrary, formalistic distinction“
disavowed by modern precedents to the Commerce Clause.
• Unjust to apply different sales tax policy that has been applied
to online businesses and their "brick and mortar" counterparts
• 41 States, two Territories, and the District of Columbia all asked
the Court to reject the physical presence test under Quill

State Tax Nexus: South Dakota v. Wayfair
• Approximately 28 states have adopted monetary
thresholds and the number of transactions that will
require a company to collect sales tax with varying
effective dates
• Other state statutes (even those without a threshold)
may now create nexus as a result of the Wayfair
decision
• Planning and compliance implications
• Increased burden
• Increased importance of obtaining and maintaining
resale/exemption certificates

INTERNATIONAL PROVISIONS

Proposed Section 965 Regulations
• Section 965, as introduced by the Tax Cuts and Jobs Act, imposes a one-tax
“transition tax” on the accumulated untaxed foreign earnings and profits of U.S.-
owned controlled foreign corporations and foreign corporations with a 10 percent
or greater U.S. corporate shareholder
• Earlier this year, IRS issued four notices providing guidance on certain aspects of
Section 965
• On August 1, 2018, Treasury and IRS issued proposed regulations under Section 965
providing detailed guidance relating to the application of this provision
• Largely adopt guidance previously announced in IRS Notices
• Provide clarity regarding certain definitions and rules
• Comments provided by taxpayers to relax certain rules generally not adopted
• Proposed Section 965 regulations are divided into nine sections, including rules
regarding:
• Adjustments to E&P and basis
• Allowable deductions and aggregate foreign cash positions
• Allowable foreign tax credits
• Elections and payment of the tax
• Affiliated groups

U. S. v. Colliot, (W.D. Tex., May 16, 2018)
• IRS had assessed civil penalties against Dominque Colliot in
excess of $750,000 for willful failure to file FBAR forms for the
years 2007-2010, and filed suit to obtain a judgment
• Colliot filed a Motion for Summary Judgment on the ground
that the IRS incorrectly applied the law when it calculated the
FBAR penalties
• The current statute- 31 U.S.C. §5321(a)(5)- authorizes civil
monetary penalties for failure to file a FBAR
• $10,000 per violation if failure not due to willful neglect
• Greater of $100,000 or 50% of the foreign account balance
if willful failure
• Prior to 2004, the statute capped penalties for willful FBAR
violations at $100,000, and regulations (31 C.F.R. §1010.820)
were issued consistent with that maximum penalty

U. S. v. Colliot, (W.D. Tex., May 16, 2018)
• The American Jobs Act of 2004 amended 31 U.S.C. §5321(a)(5) to increase
the maximum penalties for willful failure to file an FBAR to 50% of the
foreign account balance; however the regulations were not revised to
reflect the new statute
• Taxpayer argued that the IRS acted arbitrarily and capriciously by assessing
penalties in excess of $100,000 allowed by the regulations; IRS argued that
the regulations were superseded and invalidated by the 2004 amendments
• District Court disagreed with the IRS that the 2004 amendment to 31 U.S.C.
§5321(a)(5) implicitly superseded or invalidated the regulations
• Court held that §1010.820 is a valid regulation promulgated via notice-
and- comment rulemaking which caps the penalties for willful FBAR
violations at $100,000
• Rules issued via notice-and-comment rulemaking must be repealed via
notice-and comment rulemaking
• Court held that the IRS cannot assess FBAR penalties in excess of the
threshold set by 31 C.F.R.§1010.820, but declined to dismiss the action with
prejudice and ordered the parties to brief the court on appropriate next
steps

U.S. v. Wadham, (D. D.C., July 18, 2018)
• Taxpayers failed to file or filed inaccurate FBAR forms for 2008-2010 and the IRS
assessed penalties for multiple FBAR violations, some of which exceeded $100,000
• IRS sought to obtain a judgment for the penalties and Taxpayer filed a motion to dismiss
arguing that the FBAR penalties must be capped at $100,000
• Taxpayers argued that the penalty assessments were improper because the regulations
(31 C.F.R. §1010.820) limited the penalty to $100,000; IRS argued that the 2004 statute
authorized a penalty of up to 50% of the account balance
• District Court agreed with the Taxpayer, holding that the statute and the regulation
were not inconsistent on their face
• “The statute sets a higher cap than does the regulation; instead, the penalty cap in the
regulation is, in essence, a subset of the penalties that could be imposed by the statute. The
statute does not mandate imposition of the maximum penalty.”
• According to the court, there was a simple and straightforward interpretation that gives
coherent meaning to both the statute and the regulations---“ In the exercise of its statutory
discretion, the secretary limited the penalties that the IRS could impose to $100,000”
• Since 2004, the Treasury made periodic inflationary adjustments to penalty provisions
impacting 31 U.S.C. § 5321(a)(5)(C), but never changed the penalty cap in the regulation
• Court stated that the regulation remains in effect until amended or repealed and
therefore the IRS lacks authority to impose a penalty greater than $100,000

Norman v. U. S., (Fed. Claims, July 31, 2018)
• Taxpayer was assessed a penalty of $803,500 for willful failure to file an
FBAR for 2007, which was affirmed by the IRS appeals office.
• Taxpayer paid the penalty in full and filed a suit for refund in the Court of
Federal Claims. After the trial, Taxpayer filed a letter with the court
submitting the Colliot case to support her position that the FBAR penalty
should be limited to $100,000
• Court of Federal Claims rejected the Taxpayer’s position, holding that the
prior FBAR regulation capping the penalty at $100,000 is no longer
consistent with the amended statute and is therefore invalid
• Court rejected the reasoning of the District Court in Colliot
• Court stated that 31 U.S.C. §5321(a)(5), as amended, dictates that the
maximum penalty “shall” be increased to the greater of $100,000 or
50% of the account
• “The amendment did not merely allow for a higher “ceiling” on
penalties while allowing the Treasury Secretary to regulate that ceiling
at his discretion. Rather, Congress raised the new ceiling itself, and in so
doing, removed the Treasury Secretary’s discretion to regulate any other
maximum”

New LB&I International Compliance Campaigns
• On May 21, 2018, the IRS Large Business and International Division (LB&I)
announced the approval of 5 new campaigns on international tax
enforcement issues
• LB&I Campaigns rolled out in 2017
• Fundamental change in the way the IRS conducts examinations given
resource constraints
• Issue-focused coordinated approach for examining large and mid-sized
businesses
• Goal is to improve tax return selection, identify issues representing a
risk of non-compliance and more effectively deploy limited resources
• New International Compliance Campaigns- Focused on Nonresident aliens
• Nonresident Alien Tax Treaty Exemptions
• Nonresident Alien Schedule A and Other Deductions
• Nonresident Alien Tax Credits
• Forms 1042/1042-S Compliance
• Forms 3520/3520-A Non-Compliance and Campus Assisted Penalties

New LB&I International Compliance Campaigns
• On July 2, 2018, LB&I (LB&I) announced the approval
of 2 new campaigns on international tax enforcement
issues focused on the repatriation of foreign earnings
• Repatriation via Foreign Triangular Reorganizations
• Section 965 Transition Tax

?
QUESTIONS

If You Enjoyed This Webinar…
Upcoming Courses:
• 8/15: Now Arriving: Qualified Business Income Deduction Regulations for Section
199A
• 9/25: Adoption of New Leasing Standards
• 9/28: How Not-for-Profit Organizations Can Prepare for Revenue Recognition
• 10/2: Third Quarter Accounting and Financial Reporting Issues Update
Recent Publications:
• New Bonus Depreciation Regs Bring Clarity, Anti-Abuse Provisions, But No Fixes
• IRS Unveils Procedures to Take Advantage of Expanded Universe for Cash Method
and Other Simplification Methods
• New Charitable Contribution Deduction Regulations: The Devil Is in the Details

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Webinar Slides: Eye on Washington - Quarterly Business Tax Update, Q2 2018

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Webinar Slides: Eye on Washington - Quarterly Business Tax Update, Q2 2018