All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

COMMENT: The dangers of US tax disputes


If you enter into a tax dispute in the US, you are probably going to lose. A study has found that the odds are stacked against taxpayers whose battles with the Internal Revenue Service go all the way to the Supreme Court.

The report titled "Corporate Shams", which was published by two tax scholars at US universities, found that the IRS won more than six times out of 10 in high court battles where it claimed companies abused the tax code.

But the worrying statistic from the report is that the government won 68% of the time when it argued that taxpayers allegedly misread the tax code rather than abused it.

This prompts two questions: Is the US tax code open to being misread, that is, too complex? Or are taxpayers and their advisers not up to scratch?

But the likely answer is that there are inconsistencies in the way judgments are made and there are clearly grey areas in the tax code that can be exploited by both government and corporate lawyers.

So what this means is that taxpayers need to be aware of these discrepancies and opportunities for exploitation. And unless they have an encyclopaedic knowledge of the tax code, a lot of the time they have to rely on tax advisers to bring these discrepancies and opportunities to their attention.

Alerting clients to these possibilities is one thing. Explaining how to make the most of them is another. It is where the skill of the adviser comes in. For them to serve their client properly, a tax adviser requires not only knowledge of the tax code but also the awareness of and the ability to spot when and why the tax authorities might try to attack different types of tax planning. That entails a comprehensive understanding of the law and the pitfalls awaiting careless advice.

May's International Tax Review cover story features firms that understand the need to deliver such planning advice consistently well. The feature reveals the results of the 2012 global Tax Planning Survey. The poll ranks the leading tax planning firms in 56 jurisdictions and rewards firms that have been particularly active and creative in the global tax planning market.

Analysis of the results shows that even if you get your tax planning correct, you are still at risk. While the majority of tax planning methods and techniques are perfectly legal, they are still not immune from the attention of wider society. Gone are the days of taxpayers legitimately utilising losses to reduce their effective tax rate, two phrases are repeated the world over: "fair share" and "spirit of the law". While they are both ambiguous phrases, taxpayers are being forced to think twice about the tax planning they undertake.


Risky business: How bad tax planning could get your company in trouble

How to win a US dispute

More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree