An IRS examination or audit can disrupt your business operations and, if not handled properly and controlled, can materially affect your relationships with third parties and shareholders, and ultimately your bottom line and share price. A taxpayer involved in an international tax controversy can face special challenges and opportunities, such as issues relating to foreign-based documents, the IRS's international summons and collection authority, and invocation of the Competent Authority relief procedures. Clients call upon Caplin & Drysdale for our broad knowledge of the tax controversy process and our superior relationships with the IRS and foreign tax authorities. Call us for assistance in:
Handling IRS Examinations
Dealing with the IRS at all levels is a mainstream part of Caplin & Drysdale's domestic and international tax practice. We routinely handle IRS examinations at the revenue agent level, either directly or behind the scenes as an adjunct to our client's tax compliance department. We also take charge of an IRS examination at the IRS Appeals Office level, preparing a comprehensive written protest and negotiating with the Appeals Officer. Our attorneys regularly deal with the IRS National Office and Treasury Department, preparing ruling requests for our clients, defending our clients' positions in Technical Advice proceedings, and seeking creative solutions to client problems through administrative determinations, revenue rulings, and Treasury regulations. We also assist clients in dealing with ancillary issues relating to a tax dispute, such as financial statement disclosure, tax reserve provisions, and tax return treatment of disputed issues going forward. Through it all, we maintain high professional standards and draw upon our excellent reputation at the IRS, all of which inures to the benefit of our clients. When you add Caplin & Drysdale to your tax controversy team, you maximize your chances for success.
Representative Engagements
1. A New York Stock Exchange company engaged in the life insurance business was audited by a team of agents who took the position that certain insurance reserve practices disqualified the company for treatment as a life insurance company under Subchapter L of the Internal Revenue Code. This was a "make or break" issue for the company.
Result: Caplin & Drysdale assisted the company's tax department and CPA firm during the examination process. Caplin & Drysdale persuaded the District Director to seek Technical Advice from the IRS National Office, prepared a comprehensive Technical Advice brief, and hired outside experts to assist in the discussions with the IRS National Office. Caplin & Drysdale also worked with the company on delicate disclosure and tax reserve issues. After more than two years of discussion and deliberations, the National Office conceded the issue.
2. A closely-held corporation distributed the stock of a subsidiary to the family shareholders in a transaction intended to qualify as a tax-free spin-off. Several months later, the family shareholders sold their stock in the distributed company for a large sum of money, even though they had previously represented to the IRS in their application for a ruling that they had no plan or intention to sell the distributed stock. The IRS audited the transaction and took the position that the distribution and subsequent sale was a "device" under section 355 of the Internal Revenue Code, thereby causing the distribution to be taxable. The proposed deficiency was over $100 million in tax and interest.
Result: Caplin & Drysdale took charge of the examination and dealt directly with the revenue agent. After spending several months gathering information in this fact-intensive matter, Caplin & Drysdale prepared a comprehensive memorandum to the revenue agent. Several extensive meetings and telephone conversations with the agent ensued. Within a year, Caplin & Drysdale obtained a full concession.
3. A large estate was audited by the IRS, which proposed tax deficiencies, interest, and penalties in excess of $60 million. The major issue in the case involved the valuation of a closely held business. The IRS had retained a recognized valuation firm and a prestigious New York law firm had advised the estate to settle for $30 million.
Result: On the recommendation of the estate's litigation counsel, Caplin & Drysdale was selected to represent the estate in Tax Court. After taking control of the case, Caplin & Drysdale had the case transferred to the IRS Appeals Office. We retained new valuation experts and prepared a lengthy written Protest. After prolonged negotiations, the case was settled at approximately ten percent of the proposed deficiency.
4. A foreign corporation with operations in the United States was subjected to a lengthy and extremely contentious examination, covering 10 taxable years, and producing proposed adjustments of more than $250 million, with tax, interest, and penalties in excess of $70 million.
Result: Caplin & Drysdale was brought in towards the end of the examination to help bring closure to the examination and to diffuse the bad feelings between the parties. Caplin & Drysdale then defended the taxpayer at Appeals, won a complete IRS concession eliminating the more than $70 million potential liability, and then secured an Advance Pricing Agreement that minimized the likelihood of future examination controversies.
Our Services
If your company or you, individually, are under examination by the IRS, we can add immeasurably to your defense efforts and, where necessary, take full charge of the examination on your behalf. Call us when:
- You are apprised of the commencement of an examination so that we can advise you on logistics, day-to-day dealings with IRS agents, and handling of sensitive issues
- You need behind-the-scenes assistance with monitoring the examination, providing procedural guidance to your compliance people, and written product responding to legal and sensitive factual questions
- You need a skilled representative to deal directly with the agents and to control the examination
- You anticipate receiving or receive a Notice of Proposed Deficiency ("30-Day Letter), and wish to take the case to the IRS Appeals Office
- You are planning a transaction that requires a ruling from the IRS National Office or are in the midst of an IRS examination that requires Technical Advice from the IRS National Office
- You need favorable IRS or Treasury action in the form of an administrative announcement, revenue ruling, or Treasury Regulation
- You need Competent Authority assistance
