TIGTA: IRS policies may help multinational corporations avoid U.S. taxes

Some of the Internal Revenue Service’s policies and procedures may favor large multinational corporations that use foreign trust structures for no other purpose than to avoid paying U.S. taxes, according to a report by the Treasury Inspector General for Tax Administration.

While an entire industry of lawyers, accountants and wealth management professionals exist to help taxpayers, including multinational corporations, reduce their income subject to U.S. tax, some strategies use foreign no-tax or low-tax jurisdictions solely to hide income producing assets or underreport U.S. taxable income. 

TIGTA was provided a list of 23 multinational corporations alleged to have engaged in such strategies, and it evaluated the Internal Revenue Service’s processes, procedures and enforcement tools it uses to address these structures and transactions.

Concerns were also raised by employees regarding policies and procedures that could be favorable towards large multinational corporations. TIGTA’s concerns include that these large multinational taxpayers can directly contact IRS executives, that some of these taxpayers may not be suitable for the Compliance Assurance Process program, and that the Large Business and International Division compliance personnel have limited involvement during the appeals process.

TIGTA recommended that the IRS review its examination procedures to determine whether changes are needed in support of effective tax administration for large complex taxpayers, and that the IRS Independent Office of Appeals update its policies to require inviting compliance personnel and Counsel to taxpayer conferences involving large multinational corporations.

The IRS agreed to the first recommendation but did not agree to the second. In its report, TIGTA reemphasized the importance of compliance personnel and Counsel’s involvement in the appeals process.