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Economic Substance Guidance Issued to IRS Examiners - Emil Estafanous, CPA : Emil Estafanous, CPA

Economic Substance Guidance Issued to IRS Examiners

The IRS Large Business and International (LBI) Division released superintendence to examiners on a newly codified mercantile piece doctrine tying a focus of penalties relating to a doctrine (LBI-4-0711-015).

The Health Care and Education Reconciliation Act of 2010, P.L. 111-152, codified a mercantile piece doctrine and a associated despotic guilt chastisement for exchange entered into after Mar 30, 2010. The new Sec. 6662(b)(6) despotic guilt chastisement relates to any transaction lacking mercantile piece underneath Sec. 7701(o) and “any identical order of law.” The chastisement is 40% if a transaction is undisclosed (Sec. 6662(i)) and 20% if it is sufficient disclosed on Form 8275, Disclosure Statement, Form 8275-R, Regulation Disclosure Statement, or Schedule UTP, Uncertain Tax Position Statement, with additional mandate for reportable transactions.

The IRS has pronounced that it does not intend to yield concrete superintendence to taxpayers on a codified mercantile piece doctrine (see Notice 2010-62).

The LBI gauge released on Jul 15 tells IRS examiners that, until serve superintendence is issued, they should request a penalties in Secs. 6662(b)(6) and (i) and 6676 (governing erring claims for reinstate or credit) usually to a mercantile piece doctrine and might not levy them due to a focus of any other “similar order of law” or legal doctrine, such as a step-transaction, substance-over-form or sham-transaction doctrines.

The LBI gauge also instructs IRS examiners how to establish when it is suitable to find a capitulation of a Director of Field Operations (DFO) to lift a mercantile piece doctrine. This integrity will engage 4 steps:

For stairs 1 and 2, a gauge provides lists of specific resources that tend to uncover that focus of a mercantile piece doctrine is expected not suitable or might be appropriate, as a box might be. For step 3, it provides specific inquiries a investigator contingency answer.

The gauge clarifies for examiners that, for exchange involving a array of companion stairs with a common objective, a tenure “transaction” refers to all of a stairs taken together. Examiners can request a gauge alone to one or some-more stairs with a common objective, though contingency find superintendence from their manager and deliberate with internal IRS warn before doing so.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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