I’m quoted in Tax Notes Today

ByPhil Hodgen Published Latest Update

On September 13, 2010 IRS officially announced the PFIC workaround I blogged about on August 11, 2010.  It gives taxpayers the ability to use the “mark-to-market” system in calculating income from foreign mutual funds and other passive foreign investment companies.

Marie Sapire of Tax Notes Today wrote an article in the September 14, 2010 issue (2010 TNT 177-3) about the IRS announcement and graciously included a quote from me.  Yay I’m micro-famous.  🙂

FTA:
Practitioners are generally pleased with the IRS’s solution to the PFIC problem. “In announcing the PFIC workaround, the IRS has provided a pragmatic solution to a paperwork problem facing revenue agents and taxpayers,” said Philip D. W. Hodgen, partner of the Hodgen  Law Group PC. “Perhaps the Service will find another pragmatic solution to break the voluntary disclosure program logjam — like applying the IRM guidelines for [foreign bank account report] penalty assessment in low tax liability cases,” he said.

Yeah, it staggers me how the IRS can blithely ignore its own procedures, manuals, and existing methods of operation. Because what we’re seeing is approximately the following in our offshore amnesty cases: the Revenue Agent says “Take the 20% or we will max out every conceivable penalty we can throw at you.”

At the extreme, this is causing divide-by-zero errors. Penalties = big, actual tax liability = $0.00. Yes the Treasury has not been damaged to the tune of one cent. And for these cases the Revenue Agents are denying FAQ #9 treatment on a variety of hypertechnical grounds that would make a medieval theologian blush with embarrassment for debating how many angels can dance on the head of a pin. That is the extreme. But we see cases in which the unreported income over six years is an amount that in a normal audit wouldn’t even make you blink, but in these cases the IRS is going all Rambo. Example. Twenty. Eight. Dollar. Item. In a normal audit the agent wouldn’t even give this a second thought.

This “one size fits all” process is fueling a logjam in the audit system. Give people a reasonable, fair resolution, and they’ll take it, Mr. Commissioner. You’ll close the cases, look like a hero, and your Revenue Agents can get back to work.

In other news, our backlog of cases for which we are giving expatriation advice — people giving up citizenship and permanent resident visa status — is up sharply.

Must be a coincidence.

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Phil Hodgen

Philip D. W. Hodgen is the principal attorney of HodgenLaw PC, an international tax law firm based in Pasadena, California. He earned his undergraduate degree from Claremont McKenna College and his law degree from the School of Law at the University of California, Los Angeles. He then went on to earn a Master of Laws degree with a specialty in taxation from the University of San Diego School of Law. Admitted to the California bar in 1982, Phil spent nine years in law firms and with a large U.S. bank before starting his own firm in 1991.
Phil is a past chair of the International Tax Committee of the State Bar of California's Tax Section and was a member of the Executive Committee of the State Bar of California's Tax Section for 2004-2007. Phil frequently speaks on a variety of international tax, trust and estate topics to attorneys, accountants, and real estate professionals.

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2 Comments

  1. Look at Tax Notes Today, 2010 TNT 177-3.

    The announcement was made in a webcast. From the article:

    John C. McDougal, Office of Chief Counsel, Small Business/Self Employed Division, said on an American Law Institute-American Bar Association webcast that investments in foreign mutual funds, which are PFIC investments, “have turned up in a large number of voluntary disclosures that we’re processing — many more than we anticipated, many more than I think tax practitioners anticipated.”

    Let’s hope the IRS chooses to put this on http://www.irs.gov soon.

    There is a distressing tendency at the IRS to play hide the ball. For example, the offshore amnesty program was originally supposed to be secret, and was publicized only after an inadvertent leak of the internal memoranda setting it up. From the outside this makes the IRS look random and capricious in its application of tax law.

    /Phil

  2. Other than your post, is there a link out there for the public with the IRS announcement or from a secondary source, TNT or similar?

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.