LB&I practice units on “inbound” guidance, other foreign corporation issues

LB&I practice units on “inbound” guidance

The IRS posted seven new “practice units”—the next items in a series of IRS examiner “job aids” and training materials intended to describe for IRS agents leading practices for specific international and transfer pricing issues and transactions. The Large Business and International (LB&I) division has now published 104 of these practice units. The topics of the new LB&I practice units are:

Related content

  • Outbound transfer of foreign stock followed by check-the-box election
  • Residual profit split method - inbound
  • Rev. Proc. 99-32 inbound guidance
  • Interest expense of a foreign corporation engaged in a U.S. trade/business (non-bank, non-treaty)
  • Gross effectively connected income (ECI) of a foreign corporation (non-treaty)
  • Interest expense of U.S. branch of a foreign bank non-treaty
  • Calculating the net adjustment penalty for a substantial valuation misstatement

These new practice units have a release date of February 19, 2016. Text of the practice unit is available on the IRS practice unit webpage.

KPMG observation

The IRS practice units identify areas of strategic importance to the IRS, provide insight as to how IRS examiners will approach various transactions, and generally provide an understanding of the context in which an IRS examiner will approach a particular issue or transaction. 

Thus, taxpayers (and their tax advisers) facing an IRS examination or concerned with issue(s) presented by these practice units will want to review the relevant practice units, so as to have a better understanding of the issues that may arise either prior to or during an examination. For instance, the IRS practice units typically provide information that can help taxpayers:

  • Plan for appropriate documentation during return preparation
  • Effectively approach certain elections or certain transactions 
  • Respond appropriately to IRS correspondence

For taxpayers selected for a pending IRS examination, the practice units can provide information that may assist with preparation for the examination. For taxpayers actually under examination, the practice units may provide information that can assist taxpayers respond to IRS requests. 

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