Tax Disputes Comparative Guide

1 Legal framework

1.1 Which laws govern taxation and tax disputes in your jurisdiction?

In the United States, the tax law is principally founded on the Internal Revenue Code, a compilation of statutes that governs federal taxation. Behind these statutes sit a set of regulations promulgated by the Treasury Department, which – alongside Internal Revenue Service (IRS) rulings and less formal guidance – serve to interpret the Internal Revenue Code. Thus, between statute, regulations, rulings and guidance, a comprehensive (if byzantine) body of law emerges, governing US tax disputes with an iron – if sometimes inscrutable – fist.

Disputes over these authorities – a common enough spectacle in a nation that prizes both enterprise and litigation – find their battlegrounds in several forums. For those inclined towards a direct challenge, the US Tax Court offers an arena: no tax payment is required to enter, only the mettle to dispute the IRS's claims before paying. For others, the federal district courts and the Court of Federal Claims provide alternative forums, although they require the tax to be paid first, which can be reclaimed if victory is secured.

1.2 Do any other regional, national or supranational rules or regulations have relevance in this regard?

In addition to the authorities noted in question 1.1, state and local tax laws introduce a further layer of diversity to the tax landscape. Each state – sovereign in its own right within the federal system – crafts its own tax rules, which can vary widely. These rules govern state income tax, sales tax, property tax and more, often intertwining subtly with federal tax provisions.

On a broader scale, supranational influences, while less direct, are no less significant. International treaties and agreements – particularly those pertaining to double taxation – have a discernible impact on how the United States engages with the tax obligations of multinational enterprises and cross-border transactions. These agreements, designed to prevent the same income from being taxed by two different jurisdictions, provide a framework that complements US tax law, ensuring a modicum of coherence in the global tax regime.

1.3 Which authorities are responsible for enforcing the tax laws? What is their general approach to enforcement?

In the United States, the enforcement of federal tax laws is primarily the responsibility of the Internal Revenue Service (IRS), an agency of the Department of the Treasury. The IRS holds a broad mandate to administer the tax code, a task it approaches with an eye towards both fairness and rigour. Its responsibilities encompass:

• assessing and collecting federal taxes;
• enforcing tax laws; and
• overseeing compliance to ensure fairness in the tax system.

The IRS employs a variety of methods in its enforcement activities, ranging from audits – which may be desk based or more comprehensive field audits – to collection proceedings for delinquent taxes. Its approach is generally to encourage voluntary compliance through education and taxpayer services, with the aim of making it easier for taxpayers to understand and fulfil their obligations under the law.

1.4 To what extent do the tax authorities cooperate with (a) other national authorities and (b) their international counterparts in enforcing the tax laws? Does this vary depending on the applicable tax?

The cooperation between the IRS and other national authorities, as well as international counterparts, is robust and pivotal in the enforcement of tax laws, reflecting an understanding that tax issues often transcend borders and jurisdictions. Within the United States, the IRS collaborates with various federal agencies, including the Department of Justice, to prosecute tax fraud and other civil and criminal violations of the tax code.

Internationally, the IRS engages in significant cooperation with tax authorities in other nations through information sharing agreements and mutual assistance treaties. These collaborations are designed to enhance compliance and combat tax evasion, especially with the globalisation of business operations and investment mechanisms. The exchange of information is facilitated by agreements framed under the auspices of international organisations such as the Organisation for Economic Co-operation and Development, which has been instrumental in fostering global tax transparency.

The extent and nature of this cooperation can vary depending on the specific tax issue at hand. For instance, for taxes that have a significant international component, such as corporate income taxes or taxes on international transactions, there might be a greater degree of international cooperation. Similarly, for domestic issues such as sales taxes, the focus may primarily be on inter-state cooperation within the United States.

2 Tax investigations

2.1 How do the tax authorities monitor compliance with the tax laws? Does this vary depending on the individual taxpayer or the applicable tax?

Federal tax authorities in the United States, led by the Internal Revenue Service (IRS), employ a multifaceted approach to monitor compliance with tax laws, which varies depending on:

• the nature of the taxpayer; and
• the specific tax involved.

The IRS utilises both traditional and innovative methods to ensure compliance, reflecting a balance between enforcement and education.

For individual taxpayers, compliance monitoring often involves automated systems that compare tax returns with other financial information available to the IRS, such as reports of income from employers or financial institutions. Discrepancies may trigger automated notices or more in-depth audits, which can be conducted by mail or through in-person examinations. The IRS also conducts random audits as a way to gauge compliance and gather data to improve compliance strategies.

For larger entities, such as corporations and partnerships, the IRS might employ more complex strategies, including specialised audits conducted by teams that understand the intricate tax issues related to business operations and international transactions. These audits are often more detailed and can involve a comprehensive review of the entity's books, records and other financial data.

The type of tax also influences the monitoring strategies. For example, employment taxes may involve regular reporting and verification processes, while estate taxes might trigger an audit upon the filing of an estate tax return. Sales taxes, collected by states, involve their own sets of compliance checks, often focusing on the accuracy of sales reporting by businesses.

2.2 What typically triggers a tax investigation in your jurisdiction?

A federal tax investigation initiated by the IRS can be triggered by a variety of factors, each aimed at ensuring compliance and detecting discrepancies within tax filings. One common trigger is the discrepancy between the income reported by the taxpayer and the information available to the IRS through third-party documentation, such as:

• Forms W-2 from employers; and
• Forms 1099 from banks and other financial institutions.

These discrepancies can automatically flag a return for further review.

Another trigger is the excessive claiming of deductions or credits, particularly those that stand out due to their size or inconsistency with comparable returns. These include:

• large charitable deductions;
• home office deductions; and
• business expenses that do not seem to align with the known scale of the taxpayer's business activities.

Frequent audits or investigations can also be triggered by:

• involvement in industries known for high levels of non-compliance; or
• participation in transactions that are typically used to evade taxes, such as offshore banking arrangements.

Moreover, referrals or tips from other governmental agencies or the public can instigate investigations, especially when they suggest fraudulent activities.

Lastly, the IRS employs a more systemic approach through its computerised scoring system, which assesses each tax return based on a series of compliance indicators. Returns that score high for potential non-compliance may be selected for audit. This scoring is continually refined to adapt to new patterns of non-compliance as they emerge.

2.3 What is the limitation period for commencing a tax investigation in your jurisdiction?

The limitation period for commencing a tax investigation primarily hinges on:

• the type of issue involved; and
• the specific circumstances surrounding the tax return in question.

Under the general rule, the IRS has a three-year window from the date on which the tax return was filed to audit the return and assess additional taxes. However, this period may be extended in certain situations. For instance, if a taxpayer omits more than 25% of its income on its tax return, the IRS is afforded six years to initiate an investigation.

Furthermore, there are scenarios where no statute of limitations applies, allowing the IRS an indefinite period to conduct an investigation and assess additional taxes. This includes cases of fraud or the failure to file a tax return altogether.

Other specialised statutes of limitations that are issue specific are dictated by statute.

2.4 How does a tax investigation typically unfold in your jurisdiction?

The IRS conducts tax investigations using a structured process designed to ascertain accuracy and compliance with the tax laws.

Notification: The first step in an investigation is typically a notification sent to the taxpayer, informing it of the audit. This notice specifies the years under review and may identify particular items on the tax return that are being questioned.

Document review and interviews: An audit typically involves a detailed review of the taxpayer's records. Auditors examine receipts, books, business records and other relevant materials to verify the accuracy of the tax return. For businesses, this might include larger audits involving more extensive examination of their operations, including site visits and interviews of staff and personnel.

Conclusion of audit: After reviewing the materials provided, the IRS will conclude the audit. If the IRS finds discrepancies or underreported tax liabilities, it will issue a report outlining any additional taxes, penalties, and interest due. The taxpayer has the right to:

• agree with the findings;
• seek clarification or explanation; or
• dispute the findings.

Appeals process: If the taxpayer disagrees with the audit results, they can request a review by the IRS Independent Office of Appeals, which is designed to be an independent body within the IRS that attempts to resolve disputes short of litigation. If the dispute remains unresolved, the taxpayer has the right to litigate the matter in the US Tax Court, federal district court or the Court of Federal Claims, provided that certain jurisdictional requirements are satisfied.

2.5 What is the typical timeframe for the investigation?

The duration of an audit by the IRS can vary widely depending on:

• the complexity of the issues involved;
• the responsiveness of the taxpayer; and
• the specific type of audit being conducted.

Generally, a tax audit may unfold over several months or several years, depending on these factors.

2.6 What powers do the tax authorities have in conducting their investigation, in relation to (a) the taxpayer itself, (b) its employees and (c) third parties?

In conducting an audit, the IRS is vested with extensive powers to ensure comprehensive review and enforcement of tax laws. Some of these powers include the following.

Access to information: The IRS has the authority to request and examine books, records and other relevant documentation from the taxpayer, including financial statements, receipts, ledgers and contracts. The IRS can issue a summons for these documents if voluntary cooperation is not forthcoming.

Summonses: Beyond accessing documents, the IRS can also issue summonses to the taxpayer, their accountants or other third parties that might hold relevant information, including banks, employers and business associates. A summons can compel the appearance of these parties to testify or produce documents.

Interviews and testimony: The IRS may conduct interviews with the taxpayer and their employees to gather more insight into the tax issues under investigation.

2.7 On what grounds, if any, can taxpayers refuse to disclose commercial information during the investigation?

Taxpayers have certain rights and protections that may allow them to refuse to disclose specific commercial information during an audit, though these are applied under specific circumstances.

Trade secrets and confidential information: Taxpayers may resist disclosing information if it constitutes trade secrets or other confidential commercial information. However, the IRS generally has the authority to summons such information if it is relevant to the tax investigation. The IRS is bound by confidentiality rules under Section 6103 of the Internal Revenue Code, which restricts the disclosure of tax return information. Thus, while taxpayers must typically comply with IRS demands for information, they can expect that trade secrets or confidential business information will be protected from public disclosure.

Attorney-client privilege: Another ground for refusal can be based on attorney-client privilege, which protects communications between a taxpayer and their attorney requesting or receiving legal advice. This privilege allows taxpayers to refuse to disclose certain communications with their lawyers, although it does not extend to the underlying data or the preparation of tax returns unless the legal advice is implicated.

Relevance and enforcement: If taxpayers believe that the IRS's request for information is overly broad, is not relevant to the audit or constitutes an abusive fishing expedition, it may refuse to produce it; but this refusal may result in the information being summonsed by the IRS. The taxpayer could then challenge the summons in court. The court will then determine whether the summons is enforceable based on:

• its relevance to the investigation;
• its specificity; and
• whether the IRS has followed proper administrative steps.

2.8 Can the taxpayer object to or challenge the tax investigation? Are any other avenues available for resolving the matter?

Yes, taxpayers in the United States have several avenues through which they can object to or challenge aspects (or the results) of an audit.

Elevating an issue: If a taxpayer is experiencing issues (particularly procedural issues) with an ongoing audit, it should consider elevating the matter to a manager or other executive within the IRS.

Challenging an IRS summons: If the IRS issues a summons in connection with a tax audit, the taxpayer can challenge the summons on the grounds that it is unjustified, irrelevant or overly broad. The court will review the summons to ensure it meets legal standards, such as:

• being issued for a legitimate purpose;
• seeking information relevant to that purpose; and
• following procedural requirements.

Administrative appeals: The IRS provides an administrative avenue for resolving disputes through its Independent Office of Appeals. This office handles disagreements between taxpayers and the IRS about the results of an audit or other determinations. This process does not require legal representation, although taxpayers may choose to be represented by an attorney or certified public accountant.

Taxpayer advocate service: Taxpayers also have access to the Taxpayer Advocate Service, an independent organisation within the IRS that helps individuals and businesses to resolve problems with the IRS, often of a procedural nature.

Litigation: If disputes cannot be resolved through administrative appeals or other means, taxpayers have the option to litigate the matter.

2.9 What actions can the tax authorities take if the taxpayer does not cooperate in the investigation?

If a taxpayer does not cooperate in a tax audit or related process, the IRS has several actions it can take to compel compliance and address non-cooperation.

Summonses: The IRS can issue a summons to the taxpayer or third parties to appear, testify or produce documents, records or other necessary information. If the taxpayer fails to comply with a summons, the IRS can seek judicial enforcement.

Assessment of tax: If a taxpayer refuses to cooperate, the IRS may assess the tax based on available information, which can result in a less favourable outcome for the taxpayer. This can include using substitute returns prepared by the IRS that may not take into account all possible deductions or credits that the taxpayer might be entitled to claim.

Penalties: The IRS can impose various penalties for non-cooperation, including penalties for:

• failure to file;
• failure to pay; and
• provision of fraudulent information or for obstructing the tax investigation.

Liens and levies: For taxpayers that fail to pay assessed taxes, the IRS can place a lien on their property, which is a legal claim against the property for the amount of the unpaid taxes. If the taxes remain unpaid, the IRS can proceed with a levy, which allows it to seize property to satisfy the tax debt.

Criminal prosecution: In cases of significant non-compliance, such as tax evasion or fraud, the IRS can refer the case to the Department of Justice for criminal investigation and prosecution.

2.10 Can the tax authorities exercise discretion in their treatment of the taxpayer in exceptional circumstances (eg, insolvency)?

Yes, the IRS can exercise discretion in their treatment of taxpayers facing exceptional circumstances, such as insolvency. There are several such programmes, including the following.

Offer in compromise: This programme allows taxpayers to settle their tax liabilities for less than the full amount owed if paying the full amount would cause financial hardship, such as in cases of insolvency. The IRS considers the taxpayer's income, expenses, asset equity and ability to pay.

Instalment agreements: For taxpayers who cannot pay their taxes in full immediately, the IRS may grant the option to make monthly payments through an instalment agreement.

Currently not collectible status: If a taxpayer is unable to pay due to insolvency or other financial hardship, the IRS may temporarily delay collection until the taxpayer's financial condition improves.

Penalty abatement: In cases where a taxpayer fails to meet tax obligations due to circumstances beyond its control, the IRS may abate penalties for late filing or payment.

Flexible enforcement actions: The IRS may also choose less stringent enforcement actions, adjusting its approaches based on the taxpayer's ability to pay.

2.11 Do tax authorities have any leeway to settle in the course of tax investigations?

Yes, the IRS has some flexibility to settle tax matters during the course of a tax investigation. As a general matter, IRS auditors cannot resolve a case based on a hazards of litigation settlement, but several mechanisms exist to resolve cases in a settled fashion and short of litigation:

Offer in compromise (OIC): This programme allows taxpayers to settle their tax liabilities for less than the full amount owed if:

• they can demonstrate that paying the full amount would cause financial hardship; or
• there is doubt as to the liability or collectability.

An OIC can be negotiated during an audit if the taxpayer provides sufficient evidence to support their case.

Closing agreements: Under certain circumstances, the IRS may enter into a closing agreement with a taxpayer. Once entered, these agreements are final and conclusive, resolving specific matters of a tax investigation. Closing agreements can be used to settle complex tax issues where it may be beneficial for both parties to come to a resolution without prolonged litigation.

Fast-track settlement: This programme provides an opportunity to resolve audit issues during the examination process through mediation with an IRS Independent Office of Appeals officer. This can expedite resolution and avoid the formal appeals process.

IRS Independent Office of Appeals: If a taxpayer disagrees with an audit determination, it can usually dispute the determination with the IRS's Independent Office of Appeals, which is authorised to settle cases on substantive and hazards of litigation bases.

2.12 If the investigation concludes that taxes are overdue, what powers do the tax authorities have to collect them? Does this vary depending on the applicable tax?

When a tax investigation concludes that taxes are owed, the IRS has a range of powers to collect them. These powers are broadly applicable across various types of taxes, including income, employment and excise taxes, among others. The primary tools and powers used by the IRS for tax collection include the following.

Liens: The IRS may place a federal tax lien against a taxpayer's property, including real estate, personal property and financial assets. A lien secures the government's interest in the taxpayer's assets and appears on the taxpayer's credit report, potentially affecting credit ratings and the ability to sell or use those assets as collateral.

Levies: A more direct action than a lien, a levy allows the IRS to seize property to satisfy the tax debt. This can include:

• garnishing wages;
• taking money from bank accounts;
• seizing and selling real and personal property; and
• claiming future refunds to which the taxpayer would normally be entitled.

Offsets: The IRS can, in some circumstances, intercept federal and, in some cases, state payments due to the taxpayer, such as income tax refunds and Social Security benefits, applying these amounts to a tax debt.

Negotiated payment plans: Recognising that not all taxpayers can pay their debts immediately and in full, the IRS offers options for entering into instalment agreements.

Offer in compromise: In situations where full payment would cause financial hardship, the taxpayer may negotiate an offer in compromise, allowing it to settle the tax debt for less than the full amount owed.

2.13 On what grounds are penalties imposed and how are these calculated?

In the United States, tax-related penalties are imposed on taxpayers to encourage compliance with tax laws and to punish non-compliance and negligent behaviour. The grounds for imposing these penalties are varied and can include several common scenarios, including the following:

• Failure to file: A penalty is imposed if a taxpayer does not file its return by the due date (including extensions).
• Failure to pay: Imposed when taxpayers do not pay the taxes reported on their return by the due date.
• Underpayment of estimated tax: Typically imposed on taxpayers that do not pay enough tax through withholding or estimated tax payments.
• Accuracy-related penalty: This penalty applies when there is an understatement of taxable income due to negligence, disregard of rules or regulations, or substantial understatement of income tax.
• Fraud: If an understatement of tax is due to fraud, a more severe penalty is applied.
• Penalties for late filing of information returns: These penalties apply for late filing of returns such as Forms 1099 and W-2, required for reporting certain types of income.

The calculation of these penalties involves statutory percentages that apply to the amounts involved and the penalties can accumulate until the maximum penalty is reached. The IRS may abate or remove penalties if the taxpayer can show reasonable cause for the non-compliance and not wilful neglect.

2.14 On what grounds is interest levied and how is this calculated?

Interest on unpaid taxes is levied to compensate the government for the delay in receiving payments due by law. Interest is charged on any unpaid tax from the due date of the return until the date the balance is paid in full. The grounds for levying tax-related interest include the following:

• Unpaid taxes: Interest is charged on taxes not paid by their due date, even if an extension was granted for filing the return.
• Penalties: Interest is also charged on penalties that are assessed for failure to file, failure to pay on time, and other compliance failures.
• Underpayment of estimated tax: Interest can be charged on underpayments of estimated taxes by individuals and corporations.

The calculation of interest is determined by the federal short-term rate, plus a certain percentage. This rate is set quarterly by the IRS, based on the prevailing federal short-term interest rate. Interest compounds daily.

The IRS does not have the authority to abate interest, except:

• where authorised by law, as in the case of certain administrative errors; or
• where an erroneous IRS action or delay directly results in additional interest.

2.15 What defences are typically available to the taxpayer?

Taxpayers have several defences available when dealing with tax disputes or challenges by the IRS. These defences may:

• mitigate penalties;
• reduce tax liabilities; or
• clarify misunderstandings regarding tax obligations.

Some of the typical defences that taxpayers can utilise include the following:

• Substantiation: Taxpayers can defend themselves by providing adequate records and documentation to substantiate deductions, credits and other tax positions questioned by the IRS.
• Constitutional arguments: In some cases, taxpayers may argue that a tax regulation or the manner in which it is applied violates constitutional provisions, such as:
• • the due process clause; or
  • the equal protection clause.
• Regulatory validity: Taxpayers may dispute that they owe a tax on the basis that regulations underlying the tax were invalid under the US Administrative Procedure Act.
• Reasonable cause: This defence, typically limited to asserted penalties, applies when taxpayers can show that they failed to comply with tax laws due to reasonable cause and not due to wilful neglect.
• Statute of limitations: Taxpayers can argue that the IRS has exceeded the statutory time limit for assessing tax or filing a lawsuit for collection.
• Procedural arguments: Taxpayers may raise an argument that the IRS failed to follow proper legal procedures in assessing or collecting taxes.
• Innocent spouse relief: This defence can be used when taxpayers believe they should not be held responsible for a joint tax liability due to actions of their spouse or ex-spouse, such as omission of income or erroneous itemisation.

2.16 Can the results of the tax investigation have criminal implications for the taxpayer? Does this vary depending on the individual taxpayer?

Yes, the results of a tax investigation can have criminal implications for the taxpayer, particularly if the investigation uncovers evidence of wilful tax evasion, fraud or other criminal conduct related to tax matters. The types of criminal charges that may arise from a tax audit or investigation include the following:

• Tax evasion: This involves wilfully attempting to evade or defeat tax, including by:
• • underreporting income;
  • inflating deductions;
  • hiding money in offshore accounts; or
  • not filing tax returns at all.
• Filing false returns: Knowingly filing a false return with incorrect information (eg, false deductions or credits) can lead to criminal charges.
• Failure to file a tax return: Wilfully failing to file a return when required can also lead to criminal penalties, although this is generally pursued only when it involves significant amounts of tax owed.
• Fraud and false statements: Making fraudulent or false statements to the IRS or on a tax return can result in criminal charges.

The decision to pursue criminal charges often depends on:

• the taxpayer's intent (ie, whether the actions were wilful);
• the amount of tax involved;
• the taxpayer's previous tax history; and
• whether there was an attempt to obstruct the investigation.

It is less common for individuals making simple errors or negligent mistakes on their returns to face criminal implications. These cases are usually handled through audits, penalties and civil resolutions.

2.17 If the tax investigation has criminal implications for the taxpayer, are the answers to any of the above questions different?

When a tax investigation has criminal implications, several aspects of the process and potential defences available to the taxpayer can change compared to a purely civil investigation. Key differences and considerations include the following.

• Heightened scrutiny: In cases with potential criminal implications, the investigation is likely to be more rigorous, with a higher level of scrutiny applied to the taxpayer's records and activities. The IRS Criminal Investigation Division, which handles tax-related criminal offenses, may be involved along with other federal agencies.
• Involvement of legal counsel: Taxpayers are strongly advised to engage criminal defence attorneys who specialise in tax law as early as possible. Legal representation is crucial in criminal cases due to the potential for imprisonment.
• Fifth Amendment Rights: In criminal tax investigations, taxpayers have the right to refuse to answer questions that might incriminate them, under the protection of the Fifth Amendment. This right does not apply in the same way in civil proceedings.
• Legal proceedings: The procedures and legal standards that apply in criminal cases, such as the requirement for the government to prove guilt "beyond a reasonable doubt", are more stringent than those in civil tax disputes.
• Dual proceedings: Even if a criminal case is pursued, the IRS may also assess civil penalties and continue to seek recovery of unpaid taxes and penalties. The resolution of the criminal case does not necessarily resolve the taxpayer's civil tax liabilities.

3 Voluntary disclosure and amnesties

3.1 Are any voluntary disclosure or amnesty programmes applicable in your jurisdiction? Does this vary depending on the applicable tax?

Yes, the Internal Revenue Service offers voluntary disclosure and amnesty programmes designed to encourage taxpayers to come forward and rectify past non-compliance with tax laws. These programmes provide an opportunity for taxpayers to disclose unreported income or amend incorrect returns with reduced or sometimes waived penalties, under certain conditions. The availability and specifics of these programmes can vary based on the type of tax and the jurisdiction. Such programmes have been utilised for taxes owed due to:

• inappropriately claimed employee retention credits;
• failure to report offshore bank accounts; and
• mis- or underreported employment taxes.

4 Forum for tax disputes

4.1 In what forum(s) are tax disputes heard in your jurisdiction? Is there any choice of forum available?

Federal tax disputes can be heard in several forums and taxpayers generally have a choice of forum depending on the nature of their case and the stage at which they choose to litigate. The typical forums for federal tax disputes are as follows:

• US Tax Court: The US Tax Court specialises in hearing tax disputes that typically involve Internal Revenue Service (IRS) determinations before any tax has been assessed and paid. It is the most common forum for tax disputes. Cases are decided by judges who are usually tax experts and there are no jury trials.
• US district courts: The US district courts handle a wide range of federal cases, including tax disputes. To file here, a taxpayer must have already paid the disputed tax and be seeking a refund. Unlike the Tax Court, district courts allow both jury trials and bench trials (trials decided by a judge). Cases heard in these forums may be influenced by case law that is different from that considered by the Tax Court.
• US Court of Federal Claims: This court hears claims for monetary damages against the US government, including tax refund suits. Similar to the US district courts, a taxpayer must have already paid the disputed tax and be seeking a refund. Cases are tried by judges without a jury and may be influenced by case law distinct from that considered by both the Tax Court and district courts.
• Bankruptcy courts: In cases where tax liabilities are part of a broader bankruptcy proceeding, bankruptcy courts can determine certain tax liabilities. A determination by a bankruptcy court may be useful for taxpayers undergoing bankruptcy that need resolution of tax debts as part of the restructuring or discharge process. Decisions are integrated with broader bankruptcy case outcomes.

4.2 Who is the fact finder in a tax dispute? Does this change based on venue?

In federal tax disputes, the identity of the fact finder can vary depending on the chosen venue or forum. In the US Tax Court, US Court of Federal Claims and bankruptcy courts, the judge acts as the fact finder. If a case is pursued in a US district court, a taxpayer may elect to have the case heard either by a jury or by a judge.

5 Filing a tax dispute

5.1 What is the limitation period for filing a tax dispute in your jurisdiction?

The limitation period for filing a tax dispute, known as the statute of limitations, varies depending on the specific type of tax issue and the action being taken.

Challenging an assessment that the Internal Revenue Service (IRS) intends to make: While the IRS generally has three years from the date the taxpayer filed its tax return to assess a tax, a taxpayer typically has 90 days to file a petition with the US Tax Court if it disagrees with a tax deficiency notice issued by the IRS.

Filing a refund claim with the IRS: Generally, taxpayers must file a claim for a refund with the IRS within three years of the date on which the return was filed or two years from the date the tax was paid, whichever is later.

Filing in district court or Court of Federal Claims: If a refund claim is denied by the IRS, taxpayers generally have two years from the date of the denial to file a suit in a US district court or the Court of Federal Claims. Taxpayers must wait at least six months from the date on which they filed their refund claim before filing in those courts, unless the IRS disallows the refund claim sooner.

5.2 What are the formal requirements for filing a tax dispute?

The requirements for filing a tax dispute vary depending on the forum in which the dispute is filed.

US Tax Court: The taxpayer initiates a proceeding by filing a petition. Generally, the petition must be filed within 90 days of the IRS's issuance of a statutory notice of deficiency. A small filing fee must ordinarily be paid at the time the petition is filed. The petition should include:

• the taxpayer's name and address;
• a clear statement of the issues in the notice of deficiency being disputed; and
• a statement of the facts involved in the case.

The petition should be signed by the taxpayer or its authorised representative.

US district courts: The taxpayer initiates a proceeding in the US district courts by filing a complaint. In advance of that, the taxpayer must have:

• paid the disputed tax; and
• either:
• • received from the IRS a formal disallowance of its timely filed refund claim; or
  • waited at least six months since filing that claim.

The complaint should include:

• the reasons for the dispute over the tax;
• the facts involved in the case; and
• the amount of refund sought.

US Court of Federal Claims: Although some nuances exist, the formal procedures for initiating a case in the US Court of Federal Claims are generally consistent with those of the district courts.

Administrative appeals within the IRS: If a taxpayer elects to dispute a tax administratively before proceeding to litigation, it must file a written protest. This document should:

• outline the disagreement with the IRS findings; and
• provide supporting facts and documentation.

A protest is typically due within 30 days of the IRS's issuance of an adjustment proposal letter.

5.3 What are the procedural and substantive requirements for filing a tax dispute?

The procedural and substantive requirements for filing tax disputes are set forth in question 5.2.

5.4 Is there any possibility for collective proceedings (eg, involving several taxpayers or multiple tax assessments)?

Although tax disputes are ordinarily individualised, there are some situations in which collective proceedings might occur:

• Joint filers: Married couples who file joint tax returns are usually both responsible for the tax liability. If there is a dispute, both are typically involved in the proceedings unless one qualifies for innocent spouse relief, which can separate their liabilities.
• Bipartisan Budget Act of 2015 (BBA) partnership proceedings: Under the BBA, the IRS may audit partnerships at the entity level and make adjustments that affect all partners. This streamlined approach allows for a collective proceeding involving the partnership rather than individual partners.
• Tax Equity and Fiscal Responsibility Act (TEFRA) partnership proceedings: For tax years prior to the effective date (generally before 2018) of the BBA, the TEFRA procedures allowed the IRS to audit partnerships and affect all partners through a single judicial proceeding.
• Consolidated cases: In instances where there are multiple cases with common questions of fact or law, such as when challenging a widespread issue in a tax regulation or policy, the cases might be consolidated by the court. This consolidation helps in managing court resources better and provides consistent rulings across similar cases.
• Multiple assessments: If a taxpayer faces multiple assessments over different tax periods or types of tax, these issues may sometimes be heard together if they are closely related; although technically, each assessment requires its own resolution.

5.5 Must the sum in contention be paid into court before a tax dispute is filed?

Whether a sum of tax in dispute must be paid before a tax dispute is filed depends on the forum in which the dispute is initiated. If a taxpayer pursues a dispute over a proposed assessment of tax administratively before the IRS (ie, with the IRS Independent Office of Appeals), the tax need not be paid before that dispute is initiated. The same is true for a dispute filed with the US Tax Court.

By contrast, for disputes concerning refunds of taxes sought by a taxpayer (whether pursued administratively, in the US district courts or in the US Court of Federal Claims), the taxpayer must first pay the amount of tax at issue.

Finally, if a taxpayer intends to appeal a decision of the US Tax Court to an appellate venue (eg, the US Circuit Courts of Appeal), the taxpayer may be required to pay the tax at issue or post a bond for the amount of tax remaining at issue in the dispute before pursuing the appeal.

5.6 Has the filing of a tax dispute any effect on the payment of tax or the collection possibilities for the authorities?

When a taxpayer files a tax dispute, this action can have several implications for the payment of the tax and the collection actions that the IRS can undertake. These vary depending on the type of dispute filed:

• US Tax Court: If a taxpayer timely files a petition with the US Tax Court, the IRS is generally prohibited from taking collection action on the disputed amount until the Tax Court case is resolved.
• US district courts and Court of Federal Claims: Since disputes in these forums require the taxpayer to have already paid the tax in question, there is no collection issue at stake directly linked to the disputed tax for these cases. However, filing a refund suit does not stop the IRS from collecting other tax liabilities not involved in the suit.
• Administrative disputes: Engaging with the IRS Independent Office of Appeals does not automatically stop collection actions. However, taxpayers can request a collection due process hearing if the IRS plans to levy or has filed a lien. This can temporarily halt collections while the appeal is being reviewed.
• Effect on penalties and interest: Importantly, while collection activities may be halted temporarily under the foregoing scenarios, the accrual of interest and sometimes penalties on unpaid taxes generally continues until the dispute is resolved.

5.7 If the tax dispute is decided in favour of the authorities, is late interest due if the tax has not been settled? If the tax dispute is decided in favour of the taxpayer and the tax had already been settled, is interest due by the state?

The outcome regarding interest due on underpaid or overpaid taxes depends on whether the tax dispute is decided in favour of the government or the taxpayer:

• Tax dispute decided in favour of the government: If the tax dispute is resolved in favour of the government and the tax in question has not been paid, then late interest is typically due on the unpaid tax from the original due date of the tax until it is paid. The IRS generally will assess interest from the original payment deadline regardless of any extensions to file the tax return.
• Tax dispute decided in favour of the taxpayer: If the tax dispute is resolved in favour of the taxpayer and the tax has already been paid, the government generally must pay interest on the amount of the overpayment. The interest is calculated from the date the tax was paid or the due date of the tax return (whichever is later) until the date the refund is issued.

6 Disclosure and privilege

6.1 What rules apply to disclosure in your jurisdiction? Do any exceptions apply?

Disclosure rules are governed by various regulations that ensure fairness, transparency and efficient dispute resolution. These rules specify what information must be shared between parties and what may be withheld:

• Administrative proceedings: The Internal Revenue Service (IRS) must provide explanations for any adjustments proposed. Taxpayers must also disclose relevant supporting information during audits. In addition, taxpayers may file requests for government files through the Freedom of Information Act, although some restrictions apply to protect confidential information.
• Judicial proceedings: In court cases, the Federal Rules of Civil Procedure require extensive sharing of relevant documents and information through the discovery process.
• Exceptions to disclosure: Section 6103 of the Internal Revenue Code keeps tax returns and related information confidential, with disclosure allowed only under specific conditions. In addition, the attorney-client privilege and work product doctrine, among other privileges, allow taxpayers to withhold certain communications with attorneys and documents prepared for litigation.

6.2 What rules on third-party disclosure apply in your jurisdiction?

Strict rules govern the disclosure of taxpayer information to third parties to protect privacy and confidentiality. These rules are primarily outlined in Section 6103 of the Internal Revenue Code, which states that tax returns and "return information" are confidential and cannot be disclosed except in specified circumstances. Some of the most relevant exceptions include the following:

• Authorised disclosures: Section 6103 allows for tax information to be disclosed in specific, limited situations. These include disclosures to other federal and state agencies for tax administration purposes.
• Consent of taxpayer: Taxpayers can consent to the disclosure of their tax information to third parties. This consent must be voluntary, written and specific as to what information can be disclosed and to whom.
• Disclosure in legal proceedings: In the context of litigation, tax information may be disclosed as part of the discovery process. However, protective orders and the relevance of the information to the case are critical factors that courts consider before allowing such disclosure.
• Disclosures to contractors and agents: The IRS can disclose tax information to contractors and agents for tax administration assistance; however, these entities are bound by the same confidentiality rules as the IRS.

6.3 What rules on privilege apply in your jurisdiction?

Several legal privileges may apply in tax proceedings that protect certain communications and information from disclosure:

• Attorney-client privilege: This privilege protects confidential communications between a taxpayer and its attorney that are made for the purpose of obtaining or providing legal advice. The privilege applies only to legal advice and does not extend to:
• • communications that are purely business-related or to the underlying facts of a case; or
  • communications made for the purpose of committing a crime or fraud.
• Accountant-client privilege: In a federal tax context, this privilege is more limited compared to the attorney-client privilege; but under certain conditions, the tax advice provided by federally authorised tax practitioners (eg, certified public accountants or enrolled agents) may be confidential under a federally authorised tax practitioner-client privilege. The privilege applies only to:
• • non-criminal tax matters before the IRS; and
  • non-criminal tax proceedings in federal court.
• Work product doctrine: This doctrine protects materials prepared in anticipation of litigation from being disclosed. It covers documents and other tangible things prepared by or for an attorney or client that reflect legal research, theories, mental impressions or conclusions.
• Marital privilege: This privilege includes two aspects:
• • the spousal testimonial privilege, which allows one spouse to refuse to testify against the other in criminal cases; and
  • the marital communications privilege, which protects private communications between spouses from being disclosed.
• Fifth Amendment protections: The Fifth Amendment of the US Constitution protects individuals from being compelled to testify against themselves in criminal proceedings. In tax matters, this protection can be invoked to refuse to answer specific questions or provide information that might criminally incriminate the taxpayer.

7 Evidence

7.1 What types of evidence are permissible in tax disputes in your jurisdiction? Is expert evidence accepted?

In federal tax disputes, a wide range of evidence is permissible, reflecting the need for comprehensive fact-finding in often complex tax matters:

• Documentary evidence: This includes:
• • tax returns;
  • financial statements;
  • receipts;
  • ledgers;
  • contracts;
  • emails; and
  • any other documents that are relevant to the tax issue at hand.
• These documents must be authenticated according to legal standards in order to be admissible.
• Testimonial evidence: Testimony from the taxpayer, its employees, accountants or other witnesses can be crucial. Testimonial evidence is used to:
• • provide context;
  • explain complex transactions; or
  • clarify the taxpayer's intent, which is often significant in determining liability and penalties.
• Witnesses are subject to cross-examination and their credibility can be a critical factor in the outcome of the case.
• Expert evidence: Expert evidence is widely accepted in tax disputes, especially when the issues involve complex financial, accounting or highly technical issues that are beyond the typical knowledge of laypersons or a judge. Experts can help to explain:
• • complex tax planning strategies;
  • valuation issues;
  • international tax law; and
  • the implications of certain business transactions.
• They might also testify about:
• • accounting practices;
  • the economic substance of transactions; or
  • the application of tax laws.
• Electronic and digital evidence: As business and personal records are increasingly kept in electronic formats, digital evidence such as computer files, data extracts and even metadata can be critical.

7.2 What is the applicable standard of proof?

The applicable standard of proof primarily depends on the nature of the allegations and the type of tax issue being contested:

• Preponderance of the evidence: This is the most common standard of proof in civil tax disputes. It requires that the evidence presented by a party make it more likely than not that the facts are as claimed. Essentially, the taxpayer or the Internal Revenue Service (IRS) must demonstrate that its version of the facts is more probable than not, meaning that there is greater than a 50% chance that the facts are as asserted. This standard applies in cases involving determinations of:
• • tax liability;
  • the accuracy of tax returns; and
  • most other matters where the IRS asserts a deficiency.
• Clear and convincing evidence: This standard is higher than the preponderance of the evidence and is used in tax cases where more serious allegations are made and generally where the IRS has the burden of proof, such as cases involving fraud. This standard of proof means that the evidence must be strong enough to command the unhesitating belief of the trier of fact.
• Beyond a reasonable doubt: This is the highest standard of proof and is used in criminal proceedings, including criminal tax fraud and evasion cases. To convict a taxpayer of a criminal tax offence, the government must prove beyond a reasonable doubt that the taxpayer engaged in illegal activities under the tax law. This standard ensures that there is no other reasonable explanation that can be derived from the facts except that the defendant committed the crime.

7.3 On whom does the burden of proof rest?

The burden of proof depends on the specific aspects of the case and the nature of the claims made, but for most matters, the burden of proof will be on the taxpayer:

• General rule: Typically, taxpayers bear the burden of proof to substantiate their entitlement to any deductions, credits or exemptions claimed on their tax returns. This means that taxpayers must provide credible evidence that they meet all requirements stipulated by the tax laws for such claims.
• IRS's burden of proof: The IRS carries the burden of proof when it must demonstrate fraud or assert certain penalties. For example, if the IRS alleges that a taxpayer has committed fraud in order to evade taxes, it must prove its claim by clear and convincing evidence.
• Shift in burden of proof: In cases where the taxpayer bears the burden of proof, this burden may shift to the IRS in certain situations. First, the burden may shift if the taxpayer:
• • introduces credible evidence relevant to factual assertions;
  • complies with all statutory requirements for documentation and substantiation; and
  • has cooperated with IRS requests for information and documentation.
• Second, the burden of proof may also shift from the taxpayer to the IRS with respect to new issues raised by the IRS in a matter.

8 Proceedings

8.1 Are tax proceedings in your jurisdiction public or private? If the former, are any options available to the parties to keep the proceedings or related information confidential?

Tax proceedings in court (like most court proceedings in the United States) are generally public. However, there are specific options and mechanisms through which parties can seek to keep certain aspects of the proceedings or related information confidential.

• Protective orders: Parties can request a protective order from a court to limit access to sensitive information that needs to be disclosed as part of the legal proceedings. Protective orders can be sought when disclosure of certain information could:
• • result in harm to a business's competitive position;
  • violate privacy rights; or
  • expose confidential business practices.
• The protective order can specify that certain documents be sealed or that parts of the proceedings be conducted in a manner that limits public access, each of which is discussed below.
• Sealing of records: In some instances, parties may request that the court seal the records associated with the tax proceeding. If granted, this makes the records unavailable to the public. A court typically requires a compelling reason to seal records, balancing the need for confidentiality with the public interest in access to court proceedings. Reasons might include the protection of trade secrets, personal financial information or other sensitive data.
• Closed court sessions: Although rare, a court might agree to close portions of a proceeding to the public, especially if the testimony or evidence to be presented includes highly confidential information that could not be adequately protected by less restrictive means.

8.2 How do the proceedings unfold in your jurisdiction?

Tax proceedings follow a structured path that includes several stages, summarised below:

• Commencement of proceedings: Tax proceedings in court begin when the taxpayer files a petition (in the Tax Court) or a complaint (in US district court or the Court of Federal Claims) challenging the Internal Revenue Service's (IRS) determination of tax liability or seeking a refund of taxes already paid, respectively. The IRS (in Tax Court) or the Department of Justice (in US district court or the Court of Federal Claims) then files an answer, responding to the taxpayer's petition or complaint.
• Discovery: Both parties engage in discovery, where each party requests information and documents from the other side. Discovery in the Tax Court is less formal, though formal tools are available. In district court and the Court of Federal Claims, discovery mechanisms are more formal and include:
• • interrogatories (written questions);
  • requests for the production of documents; and
  • depositions (interviews under oath).
• Pre-trial motions: Either party may file pre-trial motions to resolve procedural or issues or substantive aspects of the case. Common motions include motions for summary judgment, where a party argues that there are no material facts in dispute and that it is entitled to judgment as a matter of law.
• Trial: During a trial, both parties present their evidence, including documents and witness testimony. Each side has the opportunity to cross-examine the other side's witnesses, challenging the evidence presented.
• Post-trial briefs: Often in tax cases, both parties submit post-trial briefs, which are detailed written arguments that summarise the evidence and make legal arguments based on that evidence.
• Judgment and decision: The judge or jury will issue a decision after reviewing all evidence and arguments. This decision often comes after post-trial briefing in the form of a written opinion. The decision may also be issued 'from the bench', meaning that the judge reads the decision into the record shortly after trial concludes. In a jury trial, the decision is rendered by the jury shortly after the trial concludes.
• Appeal: A losing party often, but not always, has a right to file an appeal of the decision to a higher court.

8.3 What is the typical timeframe for proceedings?

The typical timeframe for court proceedings can vary significantly depending on numerous factors, including:

• the complexity of the case;
• the specific court in which the case is filed;
• the workload of the court; and
• whether the case is resolved by settlement or goes to trial.

Some cases are resolved soon after trial is held, while others can linger for years after post-trial briefing and arguments.

8.4 Are settlements possible between the taxpayer and the tax authorities once judicial proceedings have been opened?

Yes, settlements between a taxpayer and the IRS or Department of Justice (depending on the forum within which a case is litigated) are possible after judicial proceedings have begun. It is common for parties to engage in settlement discussions at various points during a litigation. These occur most frequently:

• after discovery has been completed;
• after important pre-trial motions are filed or ruled upon;
• soon before a trial commences; and
• even after a trial is held but before a court has ruled.

8.5 Do the courts in your jurisdiction have full power to review facts and legal questions?

Generally, yes – all of the forums within which tax disputes are heard, including the US Tax Court, US District Courts, and US Court of Federal Claims, are authorised to review facts and legal questions that are within their jurisdiction. However, these courts may lack jurisdiction to review facts and legal questions if, for example:

• a petition or complaint is not timely filed; or
• (in the case of a refund suit) the tax at issue has not already been paid.

9 Remedies

9.1 What remedies are available in tax disputes in your jurisdiction?

Taxpayers have several remedies available when disputing tax assessments or seeking refunds, including the following:

• Settlements through administrative appeals: Taxpayers may seek to resolve a tax dispute through the Internal Revenue Service's (IRS) Independent Office of Appeals. This body within the IRS may provide relief in the form of settled resolutions of tax disputes, including penalties, short of litigation.
• Collection due process determinations: Taxpayers may request a hearing before the IRS Independent Office of Appeals if they receive a notice of intent to levy or a notice of a federal tax lien. Relief may be provided in the form of:
• • eliminating the tax owed; or
  • identifying collection alternatives.
• Protection from joint liabilities: Taxpayers who filed joint returns may seek relief from liabilities if it can be proven that they were not aware of and did not benefit from understated taxes caused by their spouse.
• Redetermination of asserted taxes: If a taxpayer disputes a tax asserted by the IRS in the US Tax Court, the court has jurisdiction to 'redetermine' the amount of tax actually owed by the taxpayer, including any penalties and interest that may be associated with such a liability.
• Refund of taxes: If a taxpayer disputes the IRS's disallowance of a refund claim in the US district courts or the Court of Federal Claims, those courts may determine that a taxpayer has overpaid its taxes and the IRS is required to issue the necessary refund.

9.2 What factors will the court consider in deciding on the appropriate remedies?

Courts evaluate a myriad of factors when considering an appropriate remedy in a tax dispute. These include:

• the nature of the tax issue;
• the complexity of the relevant tax laws;
• legal precedents;
• the underlying facts of a case;
• a taxpayer's conduct in relation to the asserted taxes and penalties;
• statutory limitations on the court's jurisdiction;
• the precedential effect of a decision; and
• equity and fairness considerations.

The weight afforded to each of these factors varies significantly from case to case and judge to judge.

10 Appeals

10.1 Can the decision of the court be appealed? If so, on what grounds and what is the process?

Yes, a court decision in a tax dispute can generally be appealed. In a typical case filed in the US Tax Court (excluding 'S cases' – that is, small tax cases), US district courts and the US Court of Federal Claims, parties have the right to appeal an adverse decision to a higher court if they believe the trial court made a legal error, in which case the appellate court reviews the matter on a de novo basis. By contrast, factual findings by the trial court are typically given deference by appellate courts and are overturned only if deemed 'clearly erroneous'.

Generally, the process for appealing a decision involves filing a notice of appeal within a specified timeframe. The case is then reviewed by the US Court of Appeals for the circuit in which relevant court is located. The appellant must submit briefs outlining its arguments for why the decision should be reversed or modified. The appellee submits briefs in response. Sometimes, oral arguments are held before a panel of judges. The appellate court can:

• affirm the decision;
• reverse it; or
• remand the case to the lower court for further proceedings based on its findings.

Appeals beyond the US Court of Appeals are subject to the Supreme Court's discretion and are rarely granted.

11 Costs, fees and funding

11.1 What costs and fees are incurred in tax disputes in your jurisdiction? Can the winning party recover its costs?

Taxpayers typically incur a variety of costs and fees, including:

• attorneys' fees;
• court filing fees;
• the costs of obtaining necessary records;
• fees for expert witnesses; and
• other miscellaneous expenses associated with preparing and conducting a case.

The overall cost can be significantly affected by:

• the complexity of the tax issue;
• the duration of the legal proceedings; and
• the need for specialised legal and financial expertise.

Regarding the recovery of these costs, the general rule is that each party bears its own expenses. However, under certain circumstances, the prevailing party may recover some costs. Specifically, taxpayers may recover reasonable administrative and litigation costs if:

• they are the prevailing party;
• the Internal Revenue Service's position was not substantially justified; and
• they meet certain other statutory requirements, including net-worth limitations for individuals and businesses.

As a practical matter, however, courts rarely decide requests for costs under these provisions in favour of taxpayers.

11.2 Are contingency fees and similar arrangements permitted in your jurisdiction?

Yes, contingency fee arrangements are permitted in tax disputes in the United States, but their use and appropriateness can vary depending on:

• the specific nature of the case; and
• the forum in which it is heard.

As a practical matter, such arrangements are more common in tax refund litigation (in US district courts and the Court of Federal Claims) than in tax deficiency litigation (in the US Tax Court). That said, contingency arrangements in tax disputes remain fairly rare, regardless of the type of tax at issue and forum.

11.3 Is third-party funding permitted in your jurisdiction?

Yes, third-party funding – also known as litigation financing – is permitted in tax disputes in the United States. This type of financing involves a third party – unrelated to the lawsuit – that provides funds to a party involved in litigation. In return, the funder receives a portion of any financial recovery from the case. Such funding arrangements, however, remain fairly novel in tax disputes.

12 International tax disputes

12.1 What is your jurisdiction's position on the resolution of international tax disputes (eg, advance pricing agreements, mutual agreement procedures, arbitrations)?

The United States actively supports and engages in various mechanisms to resolve international tax disputes:

• Advanced pricing agreements (APAs): The Internal Revenue Service (IRS) offers APAs to multinational corporations as a proactive means to prevent disputes regarding transfer pricing. These agreements provide certainty regarding the IRS's treatment of complex transactions involving related entities in different tax jurisdictions by establishing approved pricing methods for the transactions.
• Mutual agreement procedures (MAPs): The US is a participant in MAPs under the framework of tax treaties with numerous countries. A MAP allows competent authorities from the governments of the treaty partners to interact with the aim of resolving tax disputes that arise from the application of a treaty, particularly those involving double taxation.
• Arbitration: In cases where MAP does not resolve the dispute, some treaties include limited provisions for binding arbitration. When included, this process provides a definitive resolution when the competent authorities cannot reach a mutual agreement, thereby helping to ensure that disputes are resolved in a timely and conclusive manner.
• Information exchange agreements: The United States has entered into numerous bilateral and multilateral agreements that facilitate the exchange of tax information between countries, helping to resolve disputes and enforce tax compliance more effectively.

12.2 Has your jurisdiction implemented the Organisation for Economic Co-operation and Development (OECD) minimum standards with respect to international tax dispute resolution or is it a party to other agreements in this respect?

Yes, the United States has implemented several of the OECD minimum standards regarding international tax dispute resolution, particularly those outlined in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The BEPS Project aims to prevent strategies that allow multinational enterprises to shift profits to low-tax locations, leading to little or no overall corporate tax being paid. Key areas where the US aligns with OECD standards include the following:

• Dispute resolution mechanisms: The United States supports improved dispute resolution mechanisms and has included provisions for MAPs in its tax treaties, consistent with Action 14 of the BEPS Project. This action aims to make dispute resolution mechanisms more effective.
• Country-by-country reporting: Under Action 13 of the BEPS Project, the United States has adopted some aspects of country-by-country reporting requirements. These requirements mandate multinational companies to report income, taxes paid and other indicators of economic activity for each country in which they operate. This data helps the tax authorities to assess tax avoidance risks and fosters greater transparency.
• Bilateral and multilateral agreements: The United States has entered into agreements that support international cooperation in tax matters. These include:
• • treaties that prevent double taxation and tax evasion; and
  • agreements that enhance the exchange of tax-related information between countries.

12.3 Does your jurisdiction's position differ significantly from Article 25 of the OECD Model Tax Convention (including commentary)? If so, in what respects?

The United States broadly aligns with Article 25 of the OECD Model Tax Convention, which deals with MAPs. Article 25 is designed to:

• resolve issues of taxation not in accordance with the convention;
• eliminate double taxation in cases not provided for in the convention; and
• allow competent authorities from the contracting states to communicate with each other directly to resolve these issues.

However, there are nuanced differences in how the United States implements these principles compared to the strict guidelines of Article 25. These differences primarily stem from how the United States negotiates its bilateral tax treaties, which can vary in their specific terms and provisions.

Scope and application: While the United States generally includes MAP in its tax treaties, the scope and application of these procedures can differ. For example, the United States may include more detailed provisions regarding the time limits within which a taxpayer must request MAP assistance; and how arbitration under MAP is handled may also vary. For example:

• certain treaties may include time limits or notification requirements for taxpayers to request MAP; and
• treaties may also vary in terms of the availability and procedural requirements of arbitration.

Binding arbitration: Binding mandatory arbitration is a provision in the most recent US model tax treaty. Several bilateral US tax treaties have provisions for mandatory binding arbitration, including many treaties that have been recently negotiated or updated by protocols.

Access to MAP: A detailed revenue procedure, as well as the applicable treaty, sets out the requirements to apply for relief under a MAP. In practice, the United States has sometimes been criticised for:

• MAPs being less accessible to smaller taxpayers; and
• the length of time it takes to resolve disputes through MAPs.

12.4 How do domestic and international tax dispute resolution mechanisms interplay in your jurisdiction?

Revenue procedures governing the APA and MAP process govern the interplay between various international tax dispute mechanisms. In general, there are two IRS offices to which a taxpayer may present a US-initiated adjustment on an international tax issue:

• the US Competent Authority; or
• the IRS Independent Office of Appeals.

There is a programme for joint consideration of an issue by the US Competent Authority and IRS Appeals, called the simultaneous appeals process. In addition, taxpayers may litigate claims involving various international tax issues. The Competent Authority may decline to provide relief on an issue that IRS Appeals has considered or that has been litigated.

13 Trends and predictions

13.1 How would you describe the current tax dispute landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The current tax dispute landscape in the United States, particularly at the federal level, is in flux. After more than a decade of receiving limited budgetary resources (and indeed experiencing declining funding levels), the Internal Revenue Service (IRS) has recently been infused with a substantial budgetary increase, much of which is allocated to enforcement efforts. Although immediate effects are not expected, the next 12 to 36 months are expected to see significantly increased disputes activity in the tax space. Expected areas of focus by the IRS include:

• audits of high-net worth individuals and partnerships; and
• issue-specific tax matters such as those arising from tax provisions in the 2017 Tax Cuts and Jobs Act.

14 Tips and traps

14.1 What would be your recommendations to parties facing a tax dispute in your jurisdiction and what potential pitfalls would you highlight?

Tax disputes in the United States can be complex – not only substantively, but also procedurally. Taxpayers would be well advised to seek out competent counsel experienced in handling tax disputes and litigation. Many pitfalls, such as failing to timely file required forms or court actions, can be avoided through such representation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.