On 22 March 2024, Treasury proposed regulations identifying exceptions to the 45-day advance notice period that the IRS must provide taxpayers before contacting third parties during audit. The Taxpayer First Act (2019) made several structural changes to the IRS and the Code that—in theory—establish some degree of equilibrium in the audit process and protect taxpayers from (real or perceived) process-related abuses.
One such change was requiring the IRS to provide taxpayers substantive, advance notice before contacting third parties for information during an exam.

The IRS is laying the groundwork for more aggressive and contentious transfer pricing controversies, recently revealing that it will more actively consider applying the economic substance doctrine and related penalties in those cases. It is unclear how the IRS would apply the doctrine to otherwise economically meaningful related party arrangements, but the IRS’s shot across the bow should be taken seriously, and the new approach will likely soon be made manifest at the examination stage.

Read publication We are pleased to enclose the February issue of Tax News and Developments, a publication of Baker McKenzie’s North America Tax Practice Group. This month’s edition features a discussion on three Tax Court opinions under section 6751 (b), final withholding regulations, a review of final and proposed BEAT…