IRS Proposes Rules to Curb Corporate Tax Inversions

The Internal Revenue Service and its parent, the Treasury Department, have adopted new rules to block companies from moving abroad for lower taxes. The new rules, as well as additional strategies still under consideration to block corporate inversions, are a stopgap measure by the Treasury Department until Congress decides to take legislative action.

Corporate inversions, where Americans buy smaller foreign companies and relocate their headquarters outside the United States, have become a hot button political issue over the past few years as large corporations sought to use the technique to lower their tax bill.

The new rules beef up the limitations on relocating a corporate headquarters to a country where it does not conduct substantial business activities. The Treasury has previously proposed changes to the rules to make it harder for companies to repatriate overseas cash as part of merger deals without paying taxes on that income.

In other news, a report by the Office of the Inspector General has scrutinized the IRS for spending too much of its time auditing people with incomes from $200,000 to $400,000 a year and too little going after the wealthiest Americans. In response, the IRS is reportedly looking at its decision to target this income range as high income.

The IRS has been struggling with pursuing audits and enforcement actions in light of the budget cuts imposed by Congress over the past 5 years. Since 2010, their budget has been cut approximately $2.5 billion. President Obama called for a nearly $2 billion raise in the agency’s spending as part of his administration’s budget proposal but Congressional Republicans have instead called for it to be cut again.

Both issues potentially implicate the IRS whistleblower program, which offers rewards of between 15 and 30 percent to individuals reporting tax noncompliance where more than $2 million is in dispute.  The issue of improper corporate inversions could potentially lead to the largest tax award ever to a whistleblower if a company were to flout the law.  And the budget and resource allocation of the IRS have been crucial to the success or failure of tips over the past few years, as the agency has been criticized for not putting enough resources into the pursuit, investigation and enforcement of these tips.

If you have information that could prove useful to the Internal Revenue Service’s tax enforcement efforts, please call 1-800-590-4116 to speak to one of our IRS whistleblower attorneys.

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