taxation law services

One-Week Filing Extension to Taxpayers Whose Preparers Were Affected by Hurricane Irene

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On September 1, 2011, the Internal Revenue Service announced that it is granting taxpayers whose preparers were affected by Hurricane Irene until September 22, 2011 to file returns normally due September 15.  The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

It is important to note that this relief does not apply to any tax payment requirements.

Underpayment and Overpayment Interest Rates for the Fourth Quarter of 2011

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On August 18, 2011, the Internal Revenue Service announced that interest rates will decrease for the calendar quarter beginning October 1, 2011. The rates will be:

  • three (3) percent for overpayments (two (2) percent in the case of a corporation);
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. These rates determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Rev. Rul. 2011-18. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. Pursuant to I.R.C. section 6621(c), the rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. See section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 567, and 571. Interest factors for daily compound interest for an annual rate of 0.5 percent are published in Appendix A of Revenue Ruling 2010-31, 2010-52 IRB 898, 899. 3.

Contact Sherayzen Law Office

If you have any questions with respect to IRS interest rates and any other tax-related concerns, you should contact our experienced tax firm to discuss your case.

Recent Developments in Transfer Pricing

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The IRS is currently examining new procedures and policies regarding transfer pricing audits. Recently, the IRS developed a “Transfer Pricing Practice” within its Large and Mid-Size Business (LMSB) operating division, and last August, the IRS realigned its Large Business & International (LB&I) operating division to handle international tax matters more effectively. The Service intends to employ experienced international transfer pricing examiners, Advanced Pricing Agreement Program staff, attorneys, economists, and other experts within the Transfer Pricing Practice to better identify emerging issues and handle such cases in an efficient manner.

The IRS is currently using a pilot program to test the Transfer Pricing Practice until official procedures and policies are developed. According to Michael Danilack, Deputy Commissioner LB&I, in a recent speech, the official practice is expected to be implemented in the very near future. Cases are being selected under the pilot program for broad, strategic impact and likelihood of success in order to identify key issues.

It should also be noted that the IRS recently decided not to appeal a loss in an important transfer pricing Tax Court case, Veritas v. Commissioner, involving the transfer of intellectual property to a wholly-owned foreign subsidiary under a cost-sharing agreement. The Tax Court ruled against the IRS, holding that Symantec Corp. (the acquirer of Veritas Software Corp.) owed no tax, penalties or interest. Although the IRS did not appeal, it did issue an Action on Decision stating that the court’s factual findings and legal assertions were erroneous. Furthermore, IRS Commissioner Doug Shulman gave a speech shortly afterward saying that the adverse decision would not limit the IRS’ intent to challenge other transfer pricing issues in the future, should they arise.

Additionally, in Congress, the House Ways and Means Committee recently scheduled a rare hearing on transfer pricing, and intends to examine the issues this year.

Contact Sherayzen Law Office NOW for Legal Advice on Transfer Pricing Agreements

This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. If you have further questions regarding these matters as it pertains to your own tax circumstances, Sherayzen Law Office offers professional advice in all of your tax and international tax needs. Call (952) 500-8159 to discuss your tax situation with an experienced business tax lawyer.

IRS Reorganizes Transfer Pricing Compliance Programs and International Coordination

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On July 27, 2011, the IRS announced that it is taking additional steps in its continuing efforts to improve the agency’s international operations. First, the IRS Advance Pricing Agreement (APA) Program, concerned exclusively with reaching pre-filing agreements with taxpayers on transfer pricing, will shift from the office of IRS Chief Counsel to an office under the Transfer Pricing Director in the Large Business &International division’s international operation. In addition, the IRS Mutual Agreement Program (MAP), concerned primarily with the bilateral resolution of transfer pricing disputes with U.S. treaty partners, will shift to the same office.

The resulting “Advance Pricing and Mutual Agreement program” will be under the direction of a single executive and the IRS will increase staffing available to the two program areas. The combined office will allow the IRS to reduce the time needed to complete advance pricing agreements and to resolve transfer pricing disputes with its treaty partners. The Office of Chief Counsel will remain a vital partner in the analysis and resolution of legal issues.

Second, to facilitate IRS coordination with treaty partners in an increasingly global environment, the IRS will adjust its competent authority and international coordination functions under an Assistant Deputy Commissioner (International) who will:

  • coordinate international activities across all IRS operating divisions,
  • oversee the IRS Exchange of Information program and IRS participation in the Joint International Tax Shelter Information Centre (JITSIC),
  • manage the activities of the IRS Tax Attaches in the agency’s foreign posts of duty,
  • coordinate IRS participation at the Organisation for Economic Cooperation and Development (OECD) and other non-governmental organizations,
  • support the Department of the Treasury in its negotiations of tax treaties and tax information exchange agreements, and
  • pursue competent authority agreements with treaty partners on issues other than transfer pricing.

The latest IRS reorganization is meant to improve tax administration in a global economy.

Form 2290: Highway Use Tax Return is Now Due on November 30, 2011

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On July 15, 2011, the IRS advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return (which is usually due on August 31) will instead be due on November 30, 2011.  IRS Notice 2011-77 explains that the main reason for the extension of the deadline is to alleviate any confusion and possible multiple filings of Form 2290 that could result if Congress reinstates or modifies the  highway use tax after September 30, 2011.

Generally, the highway use tax of up to $550 per vehicle applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. A variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax is currently set to expire on September 30, 2011.  For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on August 31.

The new November 30 filing deadline for Form 2290 (Heavy Highway Vehicle Use Tax Return) applies to the tax period that begins on July 1, 2011. It covers the vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to November 1, 2011.

To aid truckers applying for state vehicle registration on or before November 30, 2011, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year (the one that ended on June 30, 2011). Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. Prior to the new regulations, a state normally would accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through September 30.

For those acquiring and registering a new or used vehicle during the July – November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.