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Changes Proposed to US Tax Reporting Rules for “Outbound” Transfers

On January 30, 2013, the US Treasury Department (IRS) proposed amendments to existing gain recognition agreement (“GRA”) regulations that apply to US persons who transfer stock of a US corporation or a foreign corporation to a foreign corporation. The proposed changes to the GRA regulations address the consequences to US persons for failing to file GRAs and related documents (failure to file), to comply in any material respect with the terms of, or rules governing, GRAs (failure to comply), or to satisfy other reporting obligations. The proposed changes would affect not only future reorganizations and contributions of stock to foreign corporations, but also prior transfers that continue to be subject to GRA reporting. The proposed changes also provide similar failure to comply rules with respect to liquidating distributions to foreign corporations and certain other document filing requirements arising with a US person’s transfer of stock or assets to certain foreign corporations.

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Fighting Back: Taxpayers Challenge State Tax Assessments Based on Contingent-Fee Transfer Pricing Audits

In today’s economic environment, it is no secret that many states face significant budget shortfalls. In response to these circumstances, certain state treasury departments have begun to propose new income tax assessments based on transfer pricing studies that they have “outsourced” to third-party audit firms, often on contingent-fee terms. These arrangements, however, have left many taxpayers concerned. A state department of revenue’s combination of broad powers to propose adjustments and enjoyment of significant deference from state trial courts has traditionally been tempered by an expectation that the department will carefully exercise its discretion in making its assessment. But taxpayers are left wondering whether this powerful check on what otherwise might be arbitrary or capricious assessments is effectively abandoned where that state turns to a third-party, operating without transparency and on a contingent-fee basis, to pursue assessments under a highly technical area of the law (i.e., transfer pricing) with which the state department of revenue may, itself, have only limited experience.

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