The Tax Times: IRS Issues IPU's For CFCs & Subpart F Income, Which State Their Subpart F Audit Positions!

Tuesday, November 10, 2015

IRS Issues IPU's For CFCs & Subpart F Income, Which State Their Subpart F Audit Positions!

On October 9, 2015 we posted LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit!, where we discussed that tax practitioners will face new questions from examination teams as the IRS selects compliance risks based on data, in the Large Business and International Division's (LB&I) move from individual audits of multinationals to broader considerations involving risk assessment.

While LB&I is scheduled to implement the new structure in early calendar year 2016, in recently released new International Practice Units (IPUs), the IRS has provided additional guidance to its examiners on the audit of foreign base company sales income (FBCSI), a category of subpart F income. These IPUs focus on supply chain structures with foreign sales and/or manufacturing branches (including disregarded entities) that may be used by U.S. multinationals to avoid the application of the FBCSI rules.

As part of LB&I International’s knowledge management efforts, Practice Units are developed through internal collaboration and serve as both job aids and training materials on international tax issues. For example, Practice Units provide IRS staff with explanations of general international tax concepts as well as information about a specific type of transaction. In general, IPUs identify strategic areas of importance to IRS and can provide insight as to how IRS examiners may audit a particular issue or transaction. However, they are not official pronouncements of law or directives and cannot be used, cited, or relied upon as such.

Since Dec. 15, 2014, IRS has released various IPUs, covering major international tax areas some of which we've listed below:

2015
11-04-2015	License of Intangible Property from U.S. Parent to a Foreign Subsidiary	(PDF, 268KB)

10-29-2015

Sale by CFC to Unrelated Parties of Products Manufactured by Branch

(PDF, 225KB)

10-29-2015	Conducting Functional Analysis for Foreign Base Company Income (FBCI)	(PDF, 168KB)
10-29-2015	Concepts of Foreign Base Company Services Income	(PDF, 200KB)
10-29-2015	Branch Rules for Foreign Base Company Sales Income	(PDF, 222KB)
10-29-2015	Branch Sales to Unrelated Parties of Products Manufactured by CFC	(PDF, 216KB)

Click here for the complete list of IPUs.

Whether you're being audited by the IRS and want to know how the IRS will view your and/or your client's tax positions or whether you're doing tax planning in this area; it would be advisable to review any applicable IPU so that you know the IRS's audit position on that particular issue.

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