US Internal Revenue Research Articles

Withholding Tax and Equity-Linked Financial Contracts: Has France Taken A Step Closer to Section 871(m) of the US Internal Revenue Code?

On 15 February 2023, the French tax authorities adopted an unprecedented interpretation of article 119 bis(2) of the French Tax Code, permitting its application to certain equity-linked financial contracts entered into by French banks in a cross-border context. The French Supreme Administrative Court ruled that the administrative guidelines were unlawful. In the authors’ opinion, that is fortunate given the doubts surrounding the legality and the relevance of these guidelines. The only way forward might be for the legislator to intervene.

Patient Cost Savings When Using Telehealth for Management of Myeloproliferative Neoplasms

Introduction: Telemedicine has been widely utilized in the healthcare marketplace since the beginning of the COVID-19 pandemic. Over the last 3 years, virtual care has been widely employed in the care of patients with polycythemia vera (PV), essential thrombocythemia (ET) and myelofibrosis (MF) at Mayo Clinic. These rare disorders have few experts; therefore, telemedicine becomes an optimal approach for patients receive expert care even when they are not close to the medical center. 1 Additionally, telemedicine reduces financial burden for the patients. We aim to estimate potential cost savings to patients utilizing telemedicine. Methods: We identified patients with MPN seen at Mayo Clinic, Arizona who have had at least 2 visits (1 or more virtual visits) between March 2020 and June 2022. We extracted retrospective data from electronic medical records (EMR) including sociodemographic data, disease related data and number of visits - both virtual and in person - of the patients identified. The address recorded from the EMR was assumed to be the patient's location at the time of virtual visit. Driving distances were determined using zip codes in Google Maps and the patients were stratified into quartiles based on round trip travel distances. Patients in quartiles 1 through 3 were assumed to have driven while patients in quartile 4 were assumed to have traveled by plane. Patients in quartile 1 were assumed to have 1 travel day including the follow-up visit and no accommodation, patients in quartile 2 were assumed to have 2 travel days including the follow up visit and 1 night of accommodation whereas patients in quartiles 3 and 4 were assumed to have 2 travel days, 1 day for the follow up visit and 2 nights of accommodation. Mileage rate costs were based on US Internal Revenue Service (IRS) standard mileage rates for medical or moving purposes for 2021. 2 Owing to extreme variability in flight costs, flying costs were assumed to be equal to the driving costs. Per diem costs for accommodation and meals and incidentals were based on the US General Services Administration (GSA) 2021 rates for Phoenix 3 with the cost being 75% of the full per diem rate on traveling days via GSA formulaic approach. Results: One hundred and eight patients having 282 virtual visits were identified. Patients ranged from 30 - 87 years with the mean and median age of 65 years and 67 years respectively. Majority of the patients were female (62%) and white (98%) with gender distribution varying by distance. Descriptive statistics of the estimated out-of-pocket costs for patients by distance quartiles are summarized in Table 1a. Mean estimated cost savings ranged from $46.8 to $877.3 with the savings of $43.8 - $1372.2 at extremes. The total cost savings by all patients was $90,306.7. The breakdown of costs by category for each quartile is shown in Table 1b which shows that the majority of costs saved by patients in quartile 1 were due to avoiding costs spent on meals and incidentals (~90% of mean costs) whereas costs saved due to meals and incidentals for patients in quartile 4 were only ~16% of the mean costs. Conclusions: Our research highlighted telemedicine as a cost-effective approach for patients with MPN who received virtual care from March 2020 - June 2022. Study limitations included not weighing costs for childcare or accompanying individuals and using driving costs instead of flying costs, however, these considerations potentially underestimate the actual cost savings to the patient. Additionally, since the median age of this population was 65, we didn't include loss of wages to the analysis, which may further underestimate the costs. Despite concerns over billing, reimbursement, and state licensure, virtual care is being established as a critical part of medicine moving forward. 1. Doolittle, G.C. and A.O. Spaulding, Providing Access to Oncology Care for Rural Patients via Telemedicine. Journal of Oncology Practice, 2006. 2(5): p. 228-230. 2. Internal Revenue Service. Standard mileage rates for 2021. Available at: https://www.irs.gov/tax-professionals/standard-mileage-rates 3. US General Services Administration. Per diem rates. Available at: https://www.gsa.gov/travel/plan-book/per-diem-rates/per-diem-rates-results?action=perdiems_report&fiscal_year=2021&state=AZ&city=&zip=85054

Balance of confidentiality and tax transparency in legal regulation of automatic exchange of financial account information in the United States

The subjectof research, relevance. Exchange of information is an important measure of administrative cooperation between and among tax authorities aimed at the fight with tax evasion. Tax evasion is a problem that has gone beyond national borders, thus individual states can’t cope with it alone. In the light of this problem tax authorities develop new forms of administrative cooperation such as automatic exchange of information. While developing new forms, states should remember about the balance of private and public interest. In the context of automatic exchange of information this problem looks like a problem of finding a balance between confidentiality and tax transparency.The purpose.The article discusses the problem of finding a balance between confidentiality and tax transparency on the example of the United States. The choice of the United States may be explained by its national approach to such a balance that differs from the approach of other states that have implemented the Common Reporting Standard and Mandatory Disclosure Rules.The aimof the article is to show what peculiarities in national and international regulation in the United States influence their unique approach and what is the effect of this approach on the global system of automatic exchange of information and the rights of the US taxpayers.The methodological basis.The following scientific methods were used: comparative-legal, formal-juridical and historic-legal. The research was conducted in compliance with the principles of independence and verification of the results.The main results,scope of application. The conclusion of this article is that the balance of private and public interest in the context of automatic exchange of information is reached by the United States through confidentiality provisions exclusively. They use their national state legislation on beneficial ownership and the lack of reciprocity in intergovernmental agreements implementing FATCA to attract foreign investors (non-resident aliens) wishing to avoid reporting under the Common Reporting Standard. Meanwhile, the United States acquire full information on the financial accounts of their citizens and resident aliens who are beneficial owners of such accounts held in foreign financial institutions. Such a state of affairs is dangerous for the effectiveness of the global system of automatic exchange of information. Moreover, it impairs the rights of Accidental Americans who permanently reside in foreign states and have no connection with the United States except for their citizenship but still have reporting obligations before the US Internal Revenue Service.Conclusions.Automatic exchange of information should be developed in compliance with the principle of balance between tax transparency and confidentiality. States should follow one and the same approach to providing such a balance. At the same time the taxpayers’ rights, in particular the rights of Accidental Americans, should be protected and they can’t be outweighed by the need of administrative cooperation between or among tax authorities.

IRS Private Letter Rulings: Initial Evidence on Determinants and Consequences

AbstractThis study examines the determinants of firms' requests for Private Letter Rulings (PLRs) from the US Internal Revenue Service (IRS) and their impact on firms' cash holdings. Our results show that PLR requests tend to be made by firms with more active tax planning, more acquisitions, higher analyst following, higher leverage, and less in‐house tax expertise. We also show that firms with IRS audit red flags are less likely to request a PLR. We use a difference‐in‐difference approach to assess changes in cash holdings following PLR requests and report a decrease in cash holdings for PLR firms, consistent with the notion that PLRs act to reduce tax uncertainty. Our study provides the first empirical evidence about the determinants of PLR requests and complements prior work on tax uncertainty and cash holdings (Hanlon, Maydew and Saavedra, 2017).

‘We support child support:’ American women’s activism through the association for children for enforcement of support, 1984–2005

ABSTRACT In the United States, the fair and efficient enforcement of child support obligations has long posed challenges to all levels of government, often to the detriment of single-mother families. This article traces the local-to-national activism of the Association for Children for Enforcement of Support (ACES), one of the largest child support enforcement organizations in the country. Established in Toledo, Ohio, and comprised overwhelmingly of women, it demanded an end to unsympathetic characterizations of mother-led families as deviant, while simultaneously working to increase the stigma surrounding those who evaded child support – the so-called ‘Deadbeat Dads.’ Examining ACES’ work provides insight into ways in which women’s organizations drew from both conservative and liberal ideas, as well as creative activism, to gain bipartisan support for stricter enforcement of child support from 1984 to 2005. Confronted with the complexities of federalism, ACES did not fully achieve its goal for a federalized support collections system through the US Internal Revenue Service; nonetheless, its lobbying efforts played a significant role in transforming court-ordered child support in the US from a largely nonobligatory system to one where payment was more systematically enforced.

Synthetic Individual Income Tax Data: Promises and Challenges

Tax data are invaluable for research, but privacy concerns severely limit access. Although the US Internal Revenue Service produces a public-use file (PUF), improved technology and the proliferation of individual data have made it increasingly difficult to protect. Synthetic data are an alternative that reproduce the statistical properties of administrative data without revealing individual taxpayer information. This paper evaluates the quality and safety of the first fully synthetic PUF and demonstrates its performance in tax model microsimulations. The synthetic PUF could also be used to develop and debug statistical programs that could then be safely run on confidential data via a validation server.

Current Topics in Health Care Law

Current Topics in Health Care Law

CEO overconfidence and IRS attention

We examine the likelihood that the US Internal Revenue Service (IRS), in its enforcement role, will accord particular attention to firms that are managed by CEOs who exhibit over-confidence, given that such CEOs may be more aggressive in their tax policies and strategies. Using data from 7757 firms, we find that this is indeed the case. Such attention is even more pronounced in the instance of overconfident CEOs whose firms are financially constrained and/or financially distressed. We also find that the IRS has augmented its audit processes to give more attention to overconfident CEOs during and post financial crisis. This may be due to the increased vulnerability of their firms to external shocks, which consequently increases the incentives to embark on tax avoidance strategies, value-destroying investments, and/or highly biased financial reporting (and forecasting responses) to tax authorities. Our results are robust after accounting for the possibility of endogeneity and using a wide range of specifications, measures, and econometric models.

Comparing CO2 and Variable-TDS Waste-Fluid Injection Into Deep Saline Geologic Formations

There is a renewed interest in carbon capture, utilization, and storage technology due to recently expanded US Internal Revenue Service 45Q credits as well as to reduce anthropogenic carbon emissions to the atmosphere. Deep carbonate reservoirs in western Kansas have the potential for CO2 storage because they have experienced low waste-fluid injection volumes to date. Waste-fluid injection in Kansas has not caused felt seismicity for more than seven decades. However, beginning in 2013, the state has experienced increased seismicity due to increased subsurface pressure associated with the injection of large volumes of variable-TDS (total dissolved solids) waste-fluid in US EPA Class I and Class II wells. This work compares CO2, low-TDS, and high-TDS injection practices and quantifies the induced spatial and temporal patterns in overpressure in the caprock, reservoir, and its hydraulically connected crystalline basement, where the majority of induced seismicity in Kansas has been observed. Our results show that pressure buildup is higher in the caprock and lower in the crystalline basement when injecting CO2 as compared to variable-TDS waste-fluid injection. The CO2 plume tends to expand at the top of the reservoir, primarily due to its lower density and viscosity than reservoir brines, creating an overpressure plume that moves the resident brine across the caprock. In contrast, waste-fluid injection moves more resident brine down into the basement, particularly when high-TDS waste-fluid is injected. This result is particularly valid for high-permeability carbonate reservoirs, in which gravity forces dominate over viscous forces and move the CO2 and overpressure plume toward the top of the reservoir. Our study may explain the lack of human-perceivable induced seismicity at operating CO2 injection projects globally.

Taxpayer integrity in US law enforcement practice.

The subject of the study is the concept of taxpayer integrity in the US law enforcement practice, in particular, the approach of the US tax authorities and the US Tax Court in applying this concept when considering tax disputes. When considering this issue, it was revealed that the signs of the taxpayer's integrity are fixed in the US Internal Revenue Code in Article 1.6664-4. In accordance with the provisions of this article, no fine may be imposed in accordance with section 6662 in respect of any part of the underpayment if the taxpayer proves that there was a reasonable reason for such part and that the taxpayer acted in good faith. В В В The main conclusion of the study is that the existence of a legal norm defining the signs of a taxpayer's good faith in the US tax legislation allows taxpayers to avoid a fine in case of incomplete fulfillment of tax obligations by providing a reasonable reasonable reason. In addition, we can conclude that when determining the legality of accepting expenses for the purpose of reducing the income tax base, the US Tax Court takes into account the nature of the appearance of these expenses (case Neonatology Assocs., P.A. v. Commissioner - 115 T.C. 43, 99 (2000), aff'd, 299 F 3d 221 (3d Cir. 2002))

Terrorism and Corporate Tax Avoidance

We examine the impact of terrorism risk on corporate tax avoidance. We find that firms headquartered in areas with a higher terrorism risk engage in more corporate tax avoidance. Further, we show that terrorism risk has a greater impact on corporate tax avoidance when terrorist attacks are severe in terms of the targets hit, damage, and the numbers of victims. Tests on channels show that higher terrorism risk is associated with firms suffering greater financial constraints. We provide evidence that increased terrorism risk is also associated with the reallocation of US Internal Revenue Service budgeted expenditures away from tax return audit enforcement and towards increased funding for the Internal Revenue Service Criminal Investigative Division combating terrorism. We conclude that terrorism risk increases and facilitates the corporate demand for tax savings.

Section 871(m) and Qualified Derivatives Dealer Explained

The article explains the basic provisions for regulations with regard to chapter 1 section 871(m) of the US Internal Revenue Code and qualified derivatives dealer status. It establishes the who, what and when in relation to tests necessary to determine liability and provides examples of how that liability can be calculated.

Do Taxes Matter to Foreign Real Estate Investors? Evidence from FIRPTA Reform

There is little research on whether foreign real estate investors respond to domestic taxes, which is somewhat ironic given that real estate is such a tax-driven industry. This article investigates the impact of taxes on foreign investment in real estate by exploring the response to 2015 reforms to the Foreign Investment in Real Property Tax Act of 1980, a unique section of the US Internal Revenue Code that imposes real estate income and capital gains withholding taxes on foreign investors. The new law exempts qualified foreign pension funds, with the effect of reducing capital gains withholding taxes by up to 35% depending on investor position and home country tax treaties. The authors find that this reform led to a five to seven percentage point increase in annual investment growth from pension funds in countries that experienced a tax rate decrease, relative to general trends in foreign pension fund investment in US real estate investment trusts. In addition, the results suggest that pension funds in those countries responded almost immediately. TOPICS:Real estate, legal/regulatory/public policy Key Findings • The results in this paper suggest that domestic income taxes can be an important determinant of foreign investment in domestic real estate. • Recent changes to the U.S. taxation of foreign investment in U.S. real estate were associated with increased annual growth in investment in U.S. REITs from foreign pension funds in countries that received a tax rate decrease (relative to general foreign pension fund investment trends). • Additionally, affected foreign pension funds appear to have adjusted their investment immediately after the tax reform went into effect.

The US IRS Publishes Regulations on Hybrid Instruments and Entities

On 28 December 2018, the US Internal Revenue Service (IRS) published Proposed Regulations providing details as to the new US limitations on the deductibility of payments in respect of hybrid instruments and hybrid transactions. This article discusses the new rules extensively.

The Special Challenges of Association Governance

The US Internal Revenue Service (IRS) recognized 92,331 trade and professional associations in 2010, a 3.4 percent increase since 2001. Here, experienced consultant Bill Charney, who has helped a wide variety of associations implement governance improvements—often using the Policy Governance® system—highlights some of the particular challenges they face.

Impact of FATCA on Israeli Trust Structures

Israel is going to exchange financial account information with the USA and, eventually, other countries as well. As a result, it is imperative that all trusts be certain of their status under the Foreign Account Tax Compliance Act (FATCA). On 1 August 2016, the Finance Committee confirmed Israel’s Regulations (‘Regulations’) implementing the FATCA Intergovernmental Agreement (IGA) signed between Israel and the USA in 2014. A request was filed with the Israeli High Court of Justice in January 2016 seeking to prohibit the Israeli tax authorities from sharing details of financial accounts with the US Internal Revenue Service (IRS). The Court denied that request on 12 September 2016. As a result, Israeli trust structures, if they have not done so already, must determine which entities in the structure have FATCA registration, due diligence, and reporting requirements.

Processed Food—An Experiment That Failed

Processed Food—An Experiment That Failed

The Wenner-Gren Foundation: Supporting Anthropology for 75 Years

The Wenner-Gren Foundation is celebrating its 75th anniversary in 2016. It was founded in 1941 with an endowment of approximately US$2 million in Servel and Electrolux stock, funds that Axel Wenner-Gren and his lawyers were sheltering from the US Internal Revenue Service. Over the foundation’s 75-year history, nothing has been added to the endowment, but it has grown to approximately US$165 million. Wenner-Gren has never been a large foundation in the sense of Rockefeller or Mellon, but it has had a disproportionate impact on the field of anthropology. The foundation and the field have in essence grown up together. Wenner-Gren preceded the other major US funder of anthropology, the National Science Foundation, by almost two decades and, through its grants, fellowships, sponsored symposia, and publications, has always been there for anthropology. It is not the same foundation as it was 75 years ago, however, and it has gone through its own difficult times, particularly in the 1970s, when a downturn in the financial markets together with changes in the US not-for-profit laws put severe pressure on the foundation, and again in the 1980s when, for a variety of reasons, it was almost lost to anthropology. However, the past three decades have seen a resurgence, and over this period we have provided approximately US$90 million to anthropology, funding almost 6,000 anthropological projects in the United States and abroad.

Doing well while fighting river blindness: the alignment of a corporate drug donation programme with responsibilities to shareholders.

Using the example of Merck's donations of ivermectin, to show how tax incentives and non-profit collaborators can make corporate largesse consistent with obligations to maximise returns to shareholders. We obtained information from publicly available data and estimated Merck's tax deductions according to the US Internal Revenue Code. Reviews of Merck-Kitasato contracts and personal interviews provided additional information regarding key lessons from this collaboration. Our best estimate of the direct cost to Merck of the ivermectin tablets donated during 2005-2011 is around US$ 600 million, well below the stated value of US$ 3.8 billion. Our calculation of tax write-offs reduces the net cost to around US$ 180 million in that period. Indirect market benefits and effects on goodwill further enhanced the compatibility of Merck's donation programme with the company's profit-maximising objective. The case offers lessons for effective management of collaborations with public and non-profit organisations. Merck's role in the donation of ivermectin for the treatment of onchocerciasis is widely and justly acknowledged as a prime example of corporate largesse in the public interest. It is nevertheless important to note that several public and non-profit collaborators, and United States taxpayers, played significant roles in increasing Merck's incentives, and indeed ability, to conduct the donation programme that changed so many lives in poor countries, while meeting its responsibilities to shareholders. Overall, the record indicates responsible corporate management of Merck's ivermectin programme and demonstrates the feasibility of socially responsible policies in a manner compatible with obligations to shareholders.

American experience in the implementation of AML / CFT system

This article presents a research into very specific matters and issues of creating and further improvement of Anti-Money Laundering and Combating the Financing of Terrorism system (abbreviated as AML/CFT) in the USA. In contains a precise analysis of key elements of this system, as well as a deep look into the nature and purposes of financial intelligence “FinCEN”. Strong emphasis is laid on The US Foreign Account Tax Compliance Act (FATCA) for the reason that, according to this Act, any foreign financial institution is legitimately forced to sign a special agreement with The US Internal Revenue Service (IRS), giving the Service power to maintain control over any American asset within its equity. The latter is understood as a legal right to investigate not only the accounts and property of American taxpayers, but to investigate any account or capital of any foreign institution having American shares or stocks.