Tax Controversy 2022 Comparisons

The largest tax controversies in the USA (in terms of amount at issue) usually arise in one of two ways. First, after the United States Internal Revenue Service (IRS) audits a taxpayer’s income tax return, the IRS may assert that the taxpayer owes additional tax (“deficiency” posture). Second, after paying tax the taxpayer may file a claim for a refund asserting that the taxpayer overpaid its correct tax liability, and the IRS may deny that claim (“refund” posture).

Tax controversies also can arise in other ways. For instance, without auditing a taxpayer’s tax return, the IRS may assert that the taxpayer owes additional tax based on information reported to the IRS from other sources (such as a financial institution). A taxpayer’s failure to notify the IRS of particular items – such as a foreign bank account – can also yield tax controversies. Tax controversies also arise when the IRS invokes specific rules in an attempt to collect one taxpayer’s tax from a third party (such as a shareholder or an employee). In addition to income taxes, tax controversies can arise when a taxpayer fails to submit gift and estate taxes (taxes required to be paid upon the making of certain gifts or leaving money or property to others upon death) or various excise taxes (taxes required to be paid upon the buying or selling of certain products or services). Substantial tax controversies also arise when employers fail to withhold or pay to the IRS employment taxes (various taxes on monetary and other compensation employers pay to their employees). Tax controversies can also arise when a state in the USA (rather than the IRS) asserts that a taxpayer owes additional tax or has not fulfilled its tax obligations to that particular state.

Measured by aggregate dollar amounts at issue, individual income taxes generally give rise to the most tax controversies.

However, measured by dollar amounts at issue in each case, tax controversies with a small number of entities (often corporate taxpayers or partnerships) tend to give rise to the most substantial and contentious income tax controversies.

The best way to attempt to mitigate possible tax controversy is to pursue upfront compliance. Taxpayers most commonly accomplish this by relying on, and co-operating with, one or more advisors (accounting firms or tax lawyers) well before filing a tax return. Advisors help taxpayers compile and understand the relevant tax laws and apply them to taxpayers’ factual circumstances. Of course, even if a taxpayer fully pursues upfront compliance, the IRS may disagree with the taxpayer’s position and controversy may ensue.

Where applicable, the IRS has certain mechanisms to enable an upfront agreement between a taxpayer and the IRS and thereby avoid future controversy. Such IRS mechanisms include:

• a private letter ruling (a written statement issued by the IRS to a taxpayer that applies the tax law to the taxpayer’s specific facts);
• an advance pricing agreement (an agreement between a taxpayer and the IRS (and potentially other governments as well) with respect to the proper pricing of intercompany transactions including those involving goods, services, and/or intangibles); and
• for certain business taxpayers, the Compliance Assurance Process (a programme where the IRS and a taxpayer work together to resolve potential issues prior to the filing of a tax return).

Other avenues to mitigate possible tax controversies include pursuing pre-filing agreements (agreements between the IRS and certain large business taxpayers that resolve the treatment of certain transactions before a tax return is submitted) and obtaining a closing agreement or accelerated issue resolution agreement for an issue addressed and resolved in a prior IRS examination that might arise again in later tax years.

Certain of the OECD’s base erosion and profit shifting (BEPS) reports were addressed through aspects of the Tax Cuts and Jobs Act (TCJA) in 2017. For instance, the TCJA included provisions attempting to:

• neutralise the effects of hybrid mismatch arrangements (BEPS Action 2);
• design effective controlled foreign company rules (BEPS Action 3); and
• limit base erosion involving interest deductions (BEPS Action 4).

The law also contains a global anti-base erosion proposal that influenced recent proposals from the OECD regarding the tax challenges of the digitalisation of the economy. These new provisions may well increase tax controversies in the USA in the next several years.

However, while the USA supports and participates in the discussions at the OECD regarding the international tax system, it has generally opposed digital services taxes and departures from arm’s-length transfer pricing and taxable nexus standards.

In recent years, the IRS has also increased its network of tax information–exchange agreements and made greater use of the information-exchange aspects of tax treaties. Exchange of information in the cross-border context has generated additional tax controversies in the USA. Since 2004, the IRS has participated in the Joint International Tax Shelter Information Centre, established to combat cross-border tax avoidance. The IRS has also implemented country-by-country reporting requirements for certain large multinational businesses. While these disclosure initiatives may not increase tax controversies, they will arguably enable the IRS and foreign authorities to pursue perceived tax avoidance in a more targeted fashion.

If the IRS audit function determines that a taxpayer owes additional tax, the taxpayer generally need not pay the additional tax before challenging the audit determination. Taxpayers have the potential ability to challenge the IRS’s determination administratively at the IRS’s Independent Office of Appeals, as described in 3. Administrative Litigation. Failing administrative resolution, taxpayers can challenge the IRS’s determination in court, as described in 4. Judicial Litigation: First Instance. Generally, if a taxpayer is ultimately determined to owe additional tax, the IRS formally “assesses” the tax due at that time. Interest on the additional tax runs from the due date of the taxpayer’s tax return for the year at issue.

However, taxpayers can stop the running of interest on an asserted tax deficiency by first paying the additional tax that the IRS claims is owed and then submitting an administrative claim for a refund with the IRS. If the IRS denies a taxpayer’s refund claim, then the taxpayer can sue the USA for a refund, as described in 4. Judicial Litigation: First Instance.

The IRS determines whose returns it will audit based on a number of criteria, some driven by particular enforcement initiatives. Over the past five years, as part of its strategic plan, the IRS has continued to increase its use of and reliance upon data analytics in making enforcement decisions, including the selection of issues and taxpayers to examine. Multinational enterprises – regardless of whether their businesses are conducted through corporations, partnerships, or as individuals – have received heightened scrutiny by the IRS. In addition, as a result of changes to the audit and tax collection procedures for partnerships under the Bipartisan Budget Act of 2012, the IRS has increased its examinations of partnerships and announced the Large Partnership Compliance Pilot Program as a focused approach to best identify the highest risk issues in partnerships. On a regular basis, the IRS issues a public list of “campaigns” or “particular issues” that will receive heightened attention and for which additional IRS resources will be dedicated. Today, how taxpayers have complied with the new provisions of the Tax Cuts and Jobs Act of 2017 (the TCJA) is an increasing area of IRS focus.

Many large companies are under continuous audit by the IRS, which means as soon as one audit is complete the following one will begin. In many instances, prior to the remote work undertaken due to COVID-19 concerns, the IRS would establish an office on the company’s premises from which the IRS examiners completed their work. Audits are typically in two or three-year “cycles,” with the goal of being as current as possible. The IRS’s “Compliance Assurance Process” is designed to allow large-case taxpayers with the best records of compliance to have their tax positions reviewed and, ideally, approved by the IRS even before the tax returns are filed. These “real time” audits come with benefits and challenges but allow taxpayers to know the IRS’s views at the time of filing their returns.

For individuals, high-net-worth or otherwise, the IRS looks for signs of non-compliance, often through automated tools that allow it to compare an individual’s reported income with the payments that employers or investment funds or others make to the taxpayer. By this comparison, the IRS can determine if there is a mismatch in the income reported by a taxpayer and the payments reported by these other parties. For many taxpayers, this mismatch is the surest way to cause the IRS to start a “paper audit” of the taxpayers’ returns to determine compliance.

Typically, the IRS must commence an audit of a timely filed tax return and assess any additional taxes within three years of the return’s filing date. This limitations period may be extended by the agreement of both the taxpayer and the IRS. The commencement of an audit does not suspend this “statute of limitations”. Therefore, this three-year period is generally, the only time constraint on the IRS to conduct an audit, subject to some nuances that can arise under certain circumstances.

Depending on the complexity of the audit and the willingness of the taxpayer to afford the IRS more time, corporate taxpayers generally agree to extend this period to allow the IRS to complete its audit and, hopefully, to reach an agreement with the IRS about any potential adjustments. It is not unusual for complex audits of multinational companies to take two to three years to complete with the limitation period having been extended by agreement for five or more years after the original expiration date. If, following an audit, the taxpayer and the IRS have been unable to reach an agreement as to disputed issues on the taxpayer’s return, the statute of limitations can and often will be further extended by agreement to allow the taxpayer to proceed to various administrative dispute-resolution forums such as IRS Appeals (discussed in 3. Administrative Litigation and 6. Alternative Dispute Resolution (ADR) Mechanisms).

The IRS will generally conduct the tax audit of a business or corporation “on site” at the company’s headquarters. However, due to COVID-19 concerns, audits have shifted and are now conducted remotely with little to no face-to-face contact between taxpayers and their exam team, which is increasingly spread out across the USA. The IRS often conducts audits of individuals through the mail and telephone calls. For taxpayers whose audit is conducted by the Large Business and International division of the IRS, the IRS follows an examination process outlined in Publication 5125, which highlights the key elements of all phases of an examination, including planning, execution and resolution.

The IRS’s data gathering is mostly conducted through requests for information called “Information Document Requests”, which seek written answers to questions, printed documents, and electronic data. Today, most information is transmitted to the IRS auditors electronically. The IRS may also seek interviews from people with knowledge of specific information within the company as well as from third parties, such as customers of the company, in the appropriate circumstances. The IRS also may seek “tours” of the company’s facilities if useful to its examination. Interviews may be conducted informally without the taxpayer’s or the IRS’s counsel present. Or, they may be conducted more formally, with counsel involved and the interviewees’ statements transcribed.

If there is a dispute between the IRS and the person or entity from whom it is seeking information or documents about the propriety of the requests, the IRS may issue an administrative “summons,” which is a more formal request for information. If the recipient refuses to comply with the summons, the IRS may seek to “enforce” the summons by commencing an action in a federal district court. Such actions happen infrequently and usually occur only after all other opportunities to reach an agreement with the IRS have failed.

As a result of the Taxpayer First Act, enacted in July 2019 and intended to improve the taxpayer’s experience when engaging with the IRS, including during the audit process, the IRS is prohibited from issuing summons unless it meets articulated criteria and from contacting third parties without providing 45 days’ notice to the taxpayer before the beginning of a contact period.

As discussed in 2.1 Main Rules Determining Tax Audits, the IRS annually publishes a list of its priority areas for enforcement, which it now calls “campaigns.” There are currently just over 50 active campaigns, in addition to the over 20 enforcement issues that have been undertaken and retired, including those arising out of the TCJA. For multinational taxpayers, the IRS has historically focused and continues to focus on transfer pricing issues, as well as, for example, those issues arising out of supply chain restructurings, cross-border acquisitions, worthless stock losses, and transactions that seek to maximise the tax effects of business losses.

Among the first requests for information that the company will receive, after a request for access to the company’s electronic books and records that support its tax returns, is a request for the company’s transfer pricing documentation, which must be provided within a statutory period of time in order to ensure its use as “penalty protection” under the Internal Revenue Code. Transfer pricing issues can relate to the provision of cross-border services and tangible goods, the licensing of intangibles, intercompany debt, and manufacturing and distribution activities. The IRS has often identified these types of cross-border issues as priorities for civil investigation and enforcement because the tax effect of the IRS’s adjustments can be in the hundreds of millions of dollars. Additionally, in instances where the company has made a large acquisition or disposition of an aspect of its company or operations, the IRS will request materials and documentation regarding that transaction, including purchase agreements and support for the manner in which the transaction was reported on the return.

For the past several years, as countries have been more willing to utilise treaties and other information-sharing arrangements between them, the IRS has issued a growing number of requests for information on behalf of other countries. Likewise, the IRS has been gaining access to a greater amount of information from other jurisdictions than ever before. Taxpayers are also only beginning to see the effect of “country by country” transfer pricing documentation. This information exchange has made it that much more important for taxpayers to co-ordinate their global responses to taxing authorities’ requests to ensure that they remain cognisant of how different jurisdictions might use or interpret that information. The “global controversy” position within companies has become increasingly important as a result. In the USA, however, this information exchange has not yet led directly to a material increase in IRS audit activity. Whether the increased co-operation among taxing authorities will affect this over time is to be determined.

As taxpayers prepare themselves to manage an IRS audit, there are three key initial considerations. First, before a taxpayer even files its tax return, it should identify those areas where it would expect a potential disagreement. This will allow a taxpayer to ensure that it has the documentation and facts and analysis it will need already in place once the IRS begins asking questions during the audit. In addition, it might allow the taxpayer to seek an advanced ruling from the IRS (such as a “private letter ruling” or an “advanced pricing agreement”) that may allow it to avoid the dispute altogether.

Second, once the audit commences, which normally will be at least a year or two after the tax return has been filed, the taxpayer should re-evaluate the merits of its position given how the law and the IRS’s view of it may have changed. The taxpayer should then determine the amount of the potential exposure for both tax and financial purposes so that it can assess the materiality of the issue accordingly. Finally, if the IRS disagrees with the taxpayer’s position, the taxpayer should assess the adequacy of its documentation to help protect itself from civil penalties.

Third, through the course of the audit, the taxpayer should endeavour to maintain control over the factual record. The taxpayer is the one that knows the facts (or should), and the IRS is seeking to learn them. So, the taxpayer must always consider whether it has mastered the facts and is able to answer the IRS’s questions. A taxpayer does not want to be in the position of learning facts at the same time as the IRS does.

Perhaps the most important “asset” a taxpayer has at its disposal during an IRS audit, however, is its credibility. Taxpayers must answer questions truthfully, stand by their commitments to the IRS for responses and information, and ensure that any representation they make can be proven if necessary. Developing a respectful and credible relationship with the IRS examiners may contribute significantly to ensuring that the audit proceeds in a timely, efficient, and, ideally, successful manner.

Before the IRS notifies a taxpayer of an additional tax assessment, the taxpayer has options to resolve its tax liability without filing an administrative refund claim. Upon receiving a final examination report and a “30-day letter,” a taxpayer may pursue an administrative appeal by filing a protest and requesting a conference with the Independent Office of Appeals (“IRS Appeals”), the arm of the IRS responsible for settling tax cases on their merits before litigation. IRS Appeals procedures are outlined below in 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction and 6.2 Settlement of Tax Disputes by Means of ADR.

If the taxpayer does not respond to the 30-day letter, the taxpayer loses its administrative-appeal rights, and the IRS will issue a statutory notice of deficiency. A taxpayer normally has 90 days to file a petition with the United States Tax Court to redetermine the deficiency asserted in the notice of deficiency. Tax Court litigation is outlined in 4. Judicial Litigation: First Instance. A Tax Court litigant who has not previously pursued an administrative appeal before IRS Appeals can be given the opportunity for IRS Appeals review, called a “post-docketed appeal,” during litigation.

If the taxpayer does not pursue either an administrative appeal or Tax Court litigation, the IRS may make an “assessment” to fix the additional amount owed by the taxpayer, after which the taxpayer must engage in the administrative claim phase if it still seeks to contest the assessment.

Administrative Claim Phase (Post-Assessment)

Once the IRS issues a notice of assessment and demands payment from a taxpayer, the administrative claim phase becomes mandatory before initiating refund litigation in either a United States district court or the United States Court of Federal Claims. This phase gives the IRS notice of the claim and the facts on which it is based so that it may consider the matter and correct any errors. However, as a practical matter in most cases, the administrative claim phase is largely procedural and does not permit the taxpayer a hearing or other adjudicative vehicle or provide a meaningful opportunity to have the IRS’s initial decision reconsidered.

An administrative claim must generally be filed within the later of three years from the time the original return was filed, or two years from the time the tax and/or penalty was paid. A refund claim is usually made on an amended return and filed with the IRS office where the taxpayer submitted its original return and must contain each ground on which a refund is claimed and all relevant facts.

The IRS may accept, deny, or examine a claim. If a claim is examined, the procedures are similar to an IRS audit of an original tax return, including the ability to file an appeal of a denial with IRS Appeals. However, if a taxpayer seeks a refund based only on contested issues considered in previously examined returns and does not want to appeal within the IRS, it can request in writing that the claim be immediately rejected.

There is no deadline for the IRS to decide an administrative claim filed by a taxpayer. If the claim is denied, the IRS will mail a notice of claim disallowance to the taxpayer. A taxpayer has two years from the date of the IRS’s mailing of this notice to file a refund suit in a United States district court or in the United States Court of Federal Claims. Alternatively, if the IRS does not render a decision on the claim within six months after its filing, the taxpayer may file suit in one of those courts at any time.

Tax litigation in the USA is usually initiated through one of two avenues: deficiency litigation and refund litigation. The law generally requires the IRS to issue a taxpayer a document called a “notice of deficiency” before the IRS can record a tax debt against the taxpayer and seek to collect the tax. The notice of deficiency allows the taxpayer to petition the United States Tax Court to challenge the asserted tax and to do so before paying the tax.

If the taxpayer chooses not to file a Tax Court petition in response to a notice of deficiency, then the IRS may assess and seek to collect the tax. In that case (or if the taxpayer otherwise pays the tax before receiving a notice of deficiency), the taxpayer may not seek judicial review of the tax assessment without first paying the tax in full and seeking a refund. This requires that the taxpayer first file a claim for refund with the IRS. If the IRS does not respond to the claim for refund within six months or if it denies the claim for refund, then the taxpayer may file a lawsuit seeking a refund in a federal district court or the United States Court of Federal Claims. The taxpayer may not file a refund suit in the Tax Court, although the Tax Court is empowered to order a refund for a period over which it possesses deficiency jurisdiction.

There are different, specialised procedures for partnerships and for taxpayers who have otherwise sought protection from the bankruptcy courts. There are also separate procedures for other, more specialised kinds of cases, including those involving collection and interest abatement.

Whether in the Tax Court or a refund forum, tax litigation involves a pretrial discovery and motion phase, a trial phase, and a post-trial briefing and decision phase.

The Tax Court requires informal discovery and emphasises a stipulation process in which the parties agree to everything relevant and not in dispute. Discovery in the refund forums tends to be formal, and stipulations are less common.

Tax Court proceedings are held before a Tax Court judge, who, if the matter proceeds to trial, will issue an opinion after the post-trial briefing. In most cases, a process follows the opinion in which the parties submit agreed or unagreed computations to the Court so that a final tax liability for the years at issue may be determined. The Tax Court then issues a decision that reflects the amount of additional tax owed, if any. The Tax Court will not consider new issues during this computational-phase. The “decision” is the final, appealable judgment of the Tax Court.

In refund forums, court proceedings may be tried to a jury (in federal district courts only) or to a judge. If the matter is tried to a judge, the court will issue an opinion that reflects the court’s factual and legal conclusions. If the court orders a refund, then the court might seek the parties’ input into the tax and interest computations by requiring status reports or a joint motion for entry of final judgment. A case is concluded by the entry of a final “judgment” reflecting the outcome, which is the final, appealable determination by the court.

Documentary and witness evidence are relevant in practically all civil tax litigation. A taxpayer must produce documents in response to discovery requests regardless of whether those documents were produced during the underlying audit. The IRS and the US Department of Justice (DOJ) may also subpoena documents (or witnesses) in connection with a deposition or trial.

Fact and expert witness depositions are available in the Tax Court and the refund forums, although depositions are less common in the Tax Court.

Direct and cross-examination of fact and expert witnesses are common in all civil tax litigation.

Expert witness reports are common in larger tax litigation. In the Tax Court, the parties exchange expert witness reports and submit them to the Court prior to trial. At trial, the Tax Court will admit the expert reports into evidence, and those reports will serve as the experts’ direct testimony. The Tax Court will sometimes allow limited additional direct testimony by experts. In refund forums, the courts typically do not admit expert reports into evidence, and experts provide direct testimony that summarises their expert opinions. Experts’ reports in those forums are used mostly for illustrative purposes only.

The taxpayer bears the burden of proof in all civil tax litigation unless exceptional circumstances apply (eg, the IRS alleges fraud or raises a new issue not raised in the pleadings). The USA always bears the burden of proof in criminal tax cases.

As noted in 4.1 Initiation of Judicial Tax Litigation, a taxpayer may generally choose whether to contest the tax in Tax Court, before payment, or in a refund forum (a federal district court or the United States Court of Federal Claims), after payment as well as the filing of an unsuccessful administrative refund claim. Choosing which forum and which approach is an important strategic decision for a taxpayer deciding to challenge its dispute in judicial tax litigation.

There are a variety of other factors that may influence a taxpayer’s choice of whether to litigate in the Tax Court or a refund forum. Those factors include the applicable judicial precedent in the relevant forum, which could differ, timing to the commencement of litigation, and, of course, whether it is able to pay the tax before commencing litigation. A taxpayer has far more control over when to initiate refund litigation than it does Tax Court litigation. If a taxpayer has not pursued an administrative appeal before the IRS, then the taxpayer would also want to consider whether to pursue an administrative appeal after docketing the case in court. Such a route is possible in the Tax Court but not in the refund forums. There are various other factors to consider, including the judges and government lawyers in the different forums and differences in the different forums’ procedural rules.

All taxpayers will have to consider these and other common strategic options regardless of whether they choose to litigate in the Tax Court or a refund forum. These options include whether to file pretrial motions to try to dispose of some or all of the case, whether to offer expert testimony, and whether and when to initiate settlement discussions.

As a common law jurisdiction, jurisprudence is always relevant in tax litigation in the USA, although its effect differs depending on the type of jurisprudence. The Tax Court is bound by its own precedent and that of the appellate court to which the decision in the case would be appealed. The Tax Court is not bound by the jurisprudence of the refund forums but would look to such jurisprudence and could adopt the reasoning if the Tax Court finds it persuasive. Like the Tax Court, the refund forums are bound by the precedent of the appellate court to which the decision in the case would be appealed. They are not bound by the Tax Court’s jurisprudence or that of the other refund forums but tend to look to it for guidance.

In international tax cases, the courts would also look to double-tax treaties and international guidelines to the extent relevant. Treaties have the force and effect of law and are binding on the courts. Guidelines such as the OECD Transfer Pricing Guidelines do not bind the courts, which would instead look to the US transfer pricing regulations. But the parties can and do reference the OECD Transfer Pricing Guidelines, and the courts will consider them for guidance and persuasiveness. The same is true of foreign court opinions.

Academic opinions and articles never bind the US courts, although parties often do (and should) cite them if relevant and helpful. Courts often look to such materials for guidance and cite them in opinions.

Appeals from opinions of the Tax Court, a federal district court, or the Court of Federal Claims are first made to one of 13 Circuit Courts of Appeal located across the USA. These appeals can typically be made as a matter of right. A further appeal from an opinion of one of the Circuit Courts can be made to the United States Supreme Court. However, the Supreme Court does not have to accept such an appeal and, as a practical matter, rarely grants appeals in tax cases. Whether the Supreme Court accepts an appeal depends on various factors – such as whether Circuit Courts disagree about the issue being appealed and the degree to which the question is one of public importance.

Appeals from the Court of Federal Claims are made to the United States Court of Appeals for the Federal Circuit. Generally, appeals from Tax Court decisions are made to the Circuit Court for the circuit in which the taxpayer has its principal place of business or principal office or agency (or if the taxpayer is not a corporation, where the taxpayer’s legal residence is located). An appeal from a district court decision is generally made to the Circuit Court covering the district where the district court is located. As noted above, any further appeal is made to the Supreme Court.

The stages in a tax appeal procedure are generally like the process for appealing other types of cases. First, there are deadlines within which a party must file a notice of appeal (typically 60 days after the entry of judgment in district court and Court of Federal Claims cases, and 90 days after the entry of decision in Tax Court cases).

Second, once a case has been appealed to a Circuit Court, the Circuit Court generally issues a schedule with deadlines by which each party – the taxpayer and the government – must submit written briefs arguing the issues being appealed. Cases on appeal are generally decided by a panel of three judges. After the parties file their respective briefs, in some cases the three judges will hear oral argument from the parties. After briefing concludes and, if applicable, oral argument, the three judges will decide the issue on appeal. Generally, a Circuit Court will affirm the lower-court decision, reverse the lower-court decision, or send the case back (remand) to the lower court to decide additional factual or legal issues. On rare occasions, the decision of a three-judge panel will be formally reviewed en banc by all the full-time judges of the Circuit Court.

Finally, a party can generally request a further appeal to the Supreme Court within 90 days after entry of a judgment in the Circuit Court. The primary means to petition the Supreme Court for review is to ask it to grant a writ of certiorari. This is a request that the Supreme Court order a lower court to send up the record of the case for review. The Court usually is not under any obligation to hear these cases, and it usually only does so if the case could have national significance, might harmonise conflicting decisions in the federal Circuit Courts, and/or could have precedential value. In fact, the Court accepts only 100–150 of the more than 7,000 cases that it is asked to review each year. If the Supreme Court accepts the appeal, the parties submit written briefs arguing the issues being appealed. The Supreme Court also commonly, but not always, hears oral argument.

As noted in 5.2 Stages in the Tax Appeal Procedure, appeals to a Circuit Court are typically decided by a panel of three judges. Circuit Courts hear all types of cases and do not specialise in tax law. The total number of judges for each Circuit Court varies. Generally, while most Circuit Courts have more than ten judges, some have more than 25 judges. In rare cases, after the decision of a three-judge panel, an appeal might be further heard by all a Circuit Court’s full-time judges – a so-called en banc review.

The Supreme Court has nine justices. Generally, all nine participate in cases in which the Supreme Court grants an appeal.

All Circuit Court judges, and Supreme Court justices have life tenure. They are appointed by the president of the USA and approved by the United States Congress.

Notably, unlike judges on the Tax Court, most Circuit Court judges, and Supreme Court justices are not necessarily experts in tax law. Their legal backgrounds and expertise are often in another subject matter.

Traditional IRS Appeals

The principal ADR mechanism for federal taxes in the USA is an administrative appeal to IRS Appeals, which is the arm of the IRS responsible for resolving tax controversies without litigation on a basis that is fair and impartial to both the government and the taxpayer. A taxpayer that disagrees with adjustments proposed by the IRS Examination team has the option, but is not required, to pursue an administrative appeal to IRS Appeals. Ordinarily, a taxpayer must request an appeal and lodge a formal protest within 30 days of receiving a “30-day letter” and the final examination report. An extension of up to 30 days may be requested and is often granted. In many cases IRS Examination prepares a rebuttal to the protest, after which the case is transferred to IRS Appeals for settlement negotiations.

Special ADR Programmes

ADR mechanisms exist to involve administrative tax appeals at different points in the process to facilitate a negotiated resolution. Under the Fast-Track Settlement (FTS) programme, the taxpayer and IRS examiners may mediate a dispute before an IRS Appeals officer while the case remains under IRS Examination jurisdiction. The Early Referral programme allows large corporate taxpayers to ask the IRS Examination team to refer disputed but fully developed issues to IRS Appeals while the audit team continues to work on other issues.

The Rapid Appeals Process (RAP) is an ADR procedure in which IRS Appeals can bring the IRS Examination team and a large business taxpayer together early in the appeals phase to attempt to resolve an issue and thereby shorten the normal IRS Appeals timeline. Finally, if IRS Appeals and the taxpayer cannot reach a settlement, Post-Appeals Mediation (PAM) is available for many types of cases and may be used as a “last shot” to avoid litigation.

Court ADR Procedures

Once in the judicial phase, taxpayers and the IRS can pursue ADR mechanisms in the same way as any other civil litigants. Most courts have rules that allow the parties to engage in court-supervised arbitration or mediation, and many courts require the parties to engage in a mediation procedure before trial.

Traditional IRS Appeals

In a typical administrative appeal, an IRS Appeals officer reviews the parties’ written submissions and, after a “preconference” in which the IRS Examination team presents its position in support of the proposed adjustments, holds one or more conferences with taxpayer representatives in an attempt to settle the case. Appeals officers are expected to act independently from IRS Examination and in a quasi-judicial manner. Appeals conferences are informal to promote frank discussion and mutual understanding. After considering the parties’ positions, IRS Appeals officers may reject either party’s position entirely or propose a settlement based on their assessment of the hazards of litigation.

Special ADR Programmes

In an FTS proceeding, an IRS Appeals officer acts as a mediator and helps the parties resolve factual or legal issues but cannot compel a settlement. If agreement is reached, IRS Appeals will exercise its settlement authority and effect the settlement. If no agreement is reached, the taxpayer may later protest the Fast-Track issues to IRS Appeals via traditional administrative appeal procedures. In an Early Referral case, IRS Appeals can exercise its settlement authority to settle the Early Referral issue. Unresolved issues are returned to IRS Examination. If the case is later protested, those issues will not be reconsidered by IRS Appeals. In the RAP, the IRS Appeals officer serves as a mediator and uses their settlement authority to effect any settlement reached. In a PAM, a different IRS Appeals officer acts as a mediator between the taxpayer and the original IRS Appeals officer. In addition, the taxpayer may elect to involve a private co-mediator at its own expense. The mediation is non-binding. If agreement is reached, IRS Appeals will use its authority to effectuate the settlement. If agreement is not reached, the taxpayer may pursue litigation alternatives.

A settlement reached with IRS Appeals under any of the ADR procedures described in 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction may be used to reduce the amount of taxes or penalties asserted by IRS Examination and any related interest charges.

A taxpayer may seek guidance on the proper tax treatment for a particular item in the form of a pre-filing agreement (PFA) between the IRS and the taxpayer or by requesting a private letter ruling (PLR) or technical advice memorandum (TAM) from the IRS National Office.

The PFA programme allows a taxpayer to request consideration of an issue before the tax return is filed and thus resolve potential disputes and controversy earlier in the examination process. PFAs can cover the current and up to four future tax years, but the transaction must be complete.

PFAs may also be used to determine the appropriate methodology for determining tax consequences affecting future tax years and are available for international issues. PFAs require a USD181,500 user fee and typically take more than a year to complete.

Before filing a tax return, a taxpayer may seek a PLR applying federal tax law to the taxpayer’s facts. A PLR binds both the IRS and the requesting taxpayer but may not be relied on as precedent by other taxpayers. A TAM is like a PLR, but it deals with a completed transaction rather than a proposed transaction and is typically obtained during the course of an IRS examination.

In appropriate cases, PFAs, PLRs, and TAMs can be effective devices to remove uncertainty concerning the application of federal tax law to a significant transaction. However, advance rulings are expensive, time-consuming, and not advisable in all cases, such as where the law is relatively clear, time is of the essence, or there is a significant risk of an adverse ruling.

With very limited exceptions, the IRS Appeals has jurisdiction over all types of tax claims regardless of the amount involved. However, IRS Appeals may refer a case back to IRS Examination where a new issue is raised, or additional fact-finding is required to resolve the case. In addition, in exceptional cases the IRS National Office can preclude IRS Appeals review by designating a case for litigation where it involves significant issues affecting many taxpayers or determining that IRS Appeals consideration is inconsistent with sound tax administration. Such a determination is not subject to judicial review.

There is no deadline for a decision by IRS Appeals. However, if the expiration of the statute of limitations on assessment becomes imminent and no statute extension can be obtained from the taxpayer, IRS Appeals will terminate the appeal and issue a statutory notice of deficiency.

In large cases, the issues may be divided among a team of Appeals officers, some of whom may be specialists such as engineers, economists, appraisers, or subject-matter experts. The team will be led by an Appeals Team Case Leader (ATCL), who has ultimate settlement authority.

Appeals officers are expected to resolve issues with strict impartiality as between the taxpayer and the government and consistently as between similarly situated taxpayers. IRS Appeals settles cases based solely on the hazards of litigation, considering existing legal precedent and the taxpayer’s particular facts, and does not take considerations of equity or public policy into account.

The ADR mechanisms are available to settle disputes arising under transfer pricing cases. Alternatively, where a transaction may result in double taxation in the USA and another country, and those countries have entered into a tax treaty containing a Mutual Agreement Procedure (MAP), the taxpayer may invoke its rights under that treaty to seek the assistance of the US competent authority (or foreign competent authority in some treaties) to alleviate that double taxation. If the MAP does not produce an acceptable resolution, the taxpayer may pursue all available domestic remedies, including the ADR mechanisms described throughout 6. Alternative Dispute Resolution (ADR) Mechanisms. IRS Appeals has jurisdiction over certain types of indirect excise taxes assessable by the IRS.

Most taxpayer disagreements with the IRS do not rise to the level of criminal offences. When the IRS believes that a taxpayer has particularly poor support for the positions taken on a tax return or has understated its taxable income by significant amounts, the primary tools the IRS uses to deter this behaviour are civil penalties for negligent filing of tax returns or for substantially understating taxable income. Even when the behaviour is particularly extreme, the IRS will primarily use civil penalties (up to 40% of the underpayment of tax, for example) to “punish” the taxpayer. If a taxpayer is alleged to have committed civil fraud by, for example, grossly overstating a deduction, then the statute of limitations for the IRS to assess the penalty remains open indefinitely. While the US tax system does not technically have a general anti-abuse rule (GAAR) or a specific anti-avoidance rule (SAAR), it does have anti-abuse provisions that oblige a taxpayer not to engage in “abusive” tax avoidance behaviour, and civil penalties are used accordingly.

Taxpayers will find themselves subject to criminal investigations and fines and potential imprisonment, however, for the most egregious conduct and for the wilful failure to pay tax. Wilful failures to report the right amount of taxable income, fraudulent tax returns, and obstruction of an IRS investigation are the types of conduct that lead the IRS to refer matters to its Criminal Investigation Division (CID). The CID will initiate matters in a number of ways: a referral from the IRS civil tax auditors; a referral from other governmental agencies; as a result of information provided by private citizens; or as part of a CID enforcement effort or initiative. The DOJ may initiate its own tax-related criminal investigation as well, seeking the assistance of the CID, which is the agency responsible for criminal tax investigations. Once a criminal investigation is “opened,” civil tax investigations are often suspended, although parallel civil and criminal tax proceedings may occur.

As described in 7.1 Interaction of Tax Assessments with Tax Infringements, some criminal tax matters arise as a referral from the IRS while conducting a civil tax examination; others arise independently. Once a criminal tax investigation has been started, the civil tax examination is often suspended. Upon the completion of the criminal tax investigation, the matter is often referred back to the IRS’s civil tax examiners to determine their own adjustments and impose their own penalties. If criminal charges are recommended, the case will be referred to the DOJ for potential prosecution. A taxpayer may, therefore, find itself subjected to both criminal charges and fines and civil tax penalties, in addition to an increased tax liability and interest.

Once the CID determines that a case is appropriate to pursue, the matter is referred to the DOJ, Tax Division, which, along with the US Attorney’s offices, is responsible for prosecuting the case. In civil tax proceedings, the taxpayer has the “burden” to show in federal court by a “preponderance of the evidence” that the IRS’s position is wrong. In a criminal tax matter, however, the DOJ has the burden to show that the taxpayer is guilty “beyond a reasonable doubt.” Also, unlike in civil tax matters, only federal district courts have jurisdiction over criminal cases, which may be decided by a judge or a jury. Criminal cases cannot be brought to or heard by the US Tax Court or the US Court of Federal Claims, which both conduct “bench” (judge) trials only.

Upon the matter being referred to the CID for investigation, the stages of the criminal tax process are generally as follows:

• initial investigation by the CID;
• special agent report (SAR), recommending criminal investigation;
• review by the special agent-in-charge (SAC) of the CID, who, if in agreement, refers the matter to the DOJ or the US Attorney’s office;
• review by the DOJ and assignment to an Assistant US Attorney;
• referral to a grand jury to assist the Assistant US Attorney in its investigation and, if appropriate, to approve indictments (criminal charges) against the taxpayer;
• once indictments are issued, the taxpayer is “arraigned” by a federal district court to explain to the taxpayer the charges being brought and to ask for its plea (guilty or not guilty);
• from this stage, the government and the taxpayer enter into plea bargaining negotiations and pretrial proceedings;
• if a plea bargain cannot be reached, then the taxpayer must proceed to trial, typically a jury trial;
• if found guilty, the taxpayer may be subject to fines, imprisonment, or both; and
• once a final judgment is rendered, the taxpayer or the government may appeal the decision to the federal appellate court with authority over the federal district court where the matter was tried – see discussion in 5. Judicial Litigation: Appeals.

A taxpayer’s paying the asserted tax, penalties, and interest will not bar a criminal tax prosecution, particularly if the taxpayer makes the payment after an investigation has been commenced. A taxpayer’s wilful failure to pay the right amount of tax in the first instance will be the determining factor. A taxpayer’s co-operation, including its payment of the asserted additional taxes, interest, and penalties, will be relevant, however, to a court if it is deciding the ultimate penalty to impose, such as a fine or imprisonment, or both.

As discussed in 7.5 Possibility of Fine Reductions, simply paying the amount owed, plus interest and penalties, does not necessarily protect someone from criminal prosecution. Plea agreements are very useful, however, as a way to negotiate a reduction in fines or the amount of time in prison or even a waiver of prison time altogether. From the government’s perspective, the ability to impose a hefty (and very public) fine with or without imprisonment may send the same enforcement message as a victory at trial and negates the risk of losing at trial. Likewise, if the taxpayer is able to negotiate a reduced sentence or fine, it too benefits, because it also avoids proceeding to trial, losing, and suffering an even greater penalty.

Appeals from judgments in federal district court proceed in the same manner to federal appellate courts and the US Supreme Court, as described in 5. Judicial Litigation: Appeals.

While the wilful avoidance of tax can lead to a criminal tax investigation and charges, there have been few if any criminal tax cases brought against taxpayers who have had their tax returns challenged by the IRS or the DOJ under the anti-abuse or transfer pricing rules of the Internal Revenue Code. Promoters of overly aggressive “tax shelters,” however, have been subjected to criminal tax charges for their roles in enticing taxpayers into engaging in transactions that are motivated solely by improper tax avoidance, rather than legally justifiable tax reduction.       

A United States taxpayer may pursue either a treaty mechanism or domestic litigation in a situation involving potential double taxation. The treaty mechanism is often the more prudent path, however, if avoiding double taxation is the primary goal. This is because, when faced with a United States federal court’s final determination of the taxpayer’s United States federal tax liability, the United States competent authority will entertain only a request for correlative relief from a foreign competent authority and will not otherwise endeavour to reduce or eliminate double taxation.

In circumstances not involving a final court determination, a taxpayer has more options. A taxpayer can seek assistance from the United States competent authority. Such assistance can take the form of a Mutual Agreement Procedure (MAP) request, or a unilateral, bilateral, or multilateral advance pricing agreement, depending on whether one taxing authority has already stated a claim that may give rise to double taxation and further depending on the transaction(s), affected jurisdiction(s), and treaty(ies) at issue.

Certain of the USA’s bilateral income tax treaties also provide for mandatory arbitration if the competent authorities do not resolve double taxation issues within a specified period of time.

The USA has not signed the MLI and is not an EU member state governed by the EU Tax Disputes Directive.

The USA does not have a general anti-avoidance rule (GAAR) that applies to cross-border situations or generally in tax cases. Although the USA’s tax treaties do not contain a GAAR, they typically contain multiple specific anti-avoidance rules (SAARs) (ie, beneficial ownership, limitation on benefits, and limitation on residents).

While the USA does not have a GAAR per se, courts in the USA have developed multiple doctrines over decades to address abusive tax transactions. Chief among those doctrines is the economic substance doctrine, which is often the most important factor in applying a GAAR for countries that have one. The United States Congress codified the economic substance doctrine in 2010, and one could view that doctrine as the closest United States analogue to a GAAR.

Some statutes and regulations in the USA have specific anti-abuse or anti-avoidance provisions.

As noted in 8.1 Mechanisms to Deal with Double Taxation, the USA has not signed the MLI.

In the USA, many international transfer pricing adjustments have been challenged by invoking the mutual agreement procedure in the applicable treaty. Some important transfer pricing disputes have been challenged in the domestic courts, primarily the United States Tax Court.

APAs are somewhat common and have become more so recently. In 2021, taxpayers submitted a total of 145 APA applications. Of these, 16 were unilateral, 121 were bilateral, and eight were multilateral.

In certain instances, taxpayers are required (or encouraged) to submit a pre-filing memorandum to the Advance Pricing and Mutual Agreement (APMA) programme before submitting their request for an APA. Generally, pre-filing memoranda contain material relevant to a potential APA request. Similarly, taxpayers are sometimes required (or encouraged) to meet with representatives of the APMA programme before submitting an APA request. The meeting also covers information and topics relevant to a potential APA request including, if applicable, a discussion of a taxpayer’s pre-filing memorandum.

Taxpayers who meet certain requirements initiate the APA process by submitting a request for an APA and paying a user fee. A taxpayer’s APA request contains a host of specified information relevant to the covered transaction(s) at issue and the taxpayer. After the request is submitted, the APMA programme contacts the submitting taxpayer with notification as to whether the request for an APA has been accepted, or for any additional required information. Once a taxpayer’s request for an APA is complete, in most cases APMA representatives will hold an opening conference with the taxpayer. The opening conference generally entails a dialogue between the taxpayer and APMA representatives about questions and information relevant to the taxpayer’s APA request. With respect to requests for bilateral or multilateral APAs, APMA representatives will consider requests from, and may invite or require, the taxpayer to provide joint presentations to APMA representatives and those of the foreign competent authority(ies). The APMA representatives will also consult as needed with any foreign competent authorities and generally keep taxpayers informed of the progress of negotiations.

If the terms of an APA are ultimately agreed upon, the APA becomes effective when executed by the taxpayer and the IRS. Thereafter, the taxpayer and the IRS take certain steps to monitor compliance with the APA. In very rare instances, the IRS might revoke or cancel an APA after its execution.

Transfer pricing has generated more substantial litigation in the USA over the past decade than any other cross-border issue. That trend continues. The recent lowering of the US corporate income tax rate, inclusion of a minimum tax, and adoption of provisions designed to incentivise “onshoring” of intellectual property could eventually mitigate transfer-pricing litigation, but that remains to be seen. Indeed, the number of transfer pricing disputes that continue to be litigated or otherwise pursued in various forums pre-litigation suggests that cases are not decreasing any time soon.

In addition, the ability of US taxpayers to “credit” their foreign taxes paid against their US tax liability is an area that is becoming more contentious as recent US statutory and regulatory changes have made the ability to seek “foreign tax credits” more difficult. The effect of this may lead to more disputes in the foreign jurisdictions so that the US taxpayers can show that they have “exhausted their remedies” (a prerequisite to the tax credit) and, likewise, more disputes and litigation in the US as taxpayers defend their credits against the IRS’s additional scrutiny.

No information is available in this jurisdiction.

No information is available in this jurisdiction.

No information is available in this jurisdiction.

No information is available in this jurisdiction.

Over 100 jurisdictions participated in negotiations on the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Although nearly 100 jurisdictions have signed onto the MLI to date, the USA has not.

In the USA, the 2016 US Model Income Tax Convention now includes binding arbitration provisions that supplement MAPs. However, only a handful of US income tax treaties provide for mandatory binding arbitration. These provisions are applicable when the competent authorities have been unable to reach a complete agreement. Such arbitration clauses are included in the US income tax treaties with Belgium, Canada, France, Germany, Japan, Spain, and Switzerland.

Generally, for those US tax treaties that contain such a provision, the binding arbitration clause applies to situations where an agreement cannot be reached under a MAP. For binding arbitration to apply, generally, two years must have passed since a MAP was commenced and:

• the taxpayer must have filed tax returns with at least one of the contracting states;
• the case must involve the application of one or more articles of the income tax treaty;
• the competent authorities must agree that the case is suitable for determination by arbitration; and
• the taxpayer must agree to the release of their information to the arbitrators and agree to agree to treat the arbitration process as confidential.

Most of the bilateral treaties that include arbitration clauses also allow, typically through the memoranda of understanding or other similar implementing documentation, for APAs to be submitted for binding arbitration in certain circumstances. This expansion applies to the bilateral treaties with Canada, Belgium, Switzerland, Japan, and Germany.

In the USA, cases are resolved by an arbitration board comprised of three members: each competent authority selects a single member, and those members select a chair from a list of candidates agreed upon by the competent authorities.

Generally, each competent authority must submit a proposed resolution with accompanying supporting papers. A so-called “baseball-style” approach means that the arbitration panel may not propose alternative resolution or forge a compromise; instead, the arbitration panel must then select one of the two proposed resolutions for each issue and inform both competent authorities of its determination.

The USA is not an EU member state and did not execute the MLI.

Beginning in 2013, the OECD and G20 countries have been working to close gaps in international tax rules that allowed for perceived opportunities for BEPS. Over the last few years, the OECD has developed two pillars that have proposed major changes to existing profit allocation and nexus rules and a global minimum tax rule.

To implement these pillars, the OECD is considering the creation of a new multilateral convention. Unlike the MLI, this new multilateral convention would apply between jurisdictions that do not currently have a bilateral treaty, supersede the relevant provisions of existing treaties concluded to eliminate double taxation, and contain all the international rules needed to implement the two pillars. The OECD has also proposed a vast dispute resolution mechanism, which would potentially include mandatory binding dispute resolution mechanisms that the new multilateral convention would likely incorporate.

The USA has not signed the MLI or any EU legal instruments. And, as discussed in 10.7 Publication of Decisions, because of the confidential nature of the decisions by an arbitration panel under US income tax treaties, any details about specific cases initiated or concluded are not released to the public and the USA does not publish any official data regarding the use of binding arbitration.

In the USA, current proposed tax legislation has been in favour of adopting Pillars One and Two in whole or in part. The legislation has not yet passed into law, however, and there remain many questions as to what the final tax legislation will look like, if it is enacted at all, during 2022. To date, few expect that the enactment of tax legislation that reflects or is consistent with Pillars One and Two will mitigate controversies for the foreseeable future. If anything, it may increase them as taxpayers and the IRS determine what the implementation of such legislation will mean.

Generally, all information provided to, and all information received from the arbitration panel must remain confidential. Thus, the competent authorities must agree not to disclose any information relating to the panel, including the arbitration panel’s determination, except in certain circumstances. Moreover, because the determinations are not binding, the arbitration panel does not always provide an explanation or analysis of the issues but only provides limited information necessary to implement the determination.

Because the USA has not signed the MLI or any EU legal instruments, the most common legal instrument used are the US income tax treaties that include binding arbitration provisions.

Generally, for US income tax treaties that contain an arbitration clause, the competent authorities deal directly with a three-member arbitration panel. Taxpayers or their representatives are not then involved.

There is no “administrative litigation” in the USA, as all litigation is judicial. There is, however, an administrative appeals process before the IRS, as described in 3.1 Administrative Claims Phase. There are no filing fees for pursuing an administrative appeal with IRS Appeals. The costs of an administrative appeal depend on whether the taxpayer hires advisers, how extensive the issues are, and how long the process lasts.

There are small fees required to initiate litigation in the Tax Court and the refund forums. The taxpayer pays the fee. A low-income taxpayer can seek a filing-fee waiver. There is also a small filing fee for filing a judicial appeal. The taxpayer must pay the filing fee if initiating the appeal. The fee for initiating an appeal is paid to the trial court with which the notice of appeal is filed. The government is generally exempt from fees and does not have to pay a filing fee if it initiates an appeal.

In limited instances, a taxpayer that prevails against the government can seek an award of litigation fees (including attorneys’ fees). Various limitations restrict the taxpayers eligible for such relief.

The IRS is not required to indemnify a taxpayer if the IRS’s position is ultimately rejected in an administrative or judicial proceeding. In limited circumstances, the taxpayer can seek to recover from the IRS the costs and fees incurred by the taxpayer in contesting the IRS’s adjustment. In refund proceedings, the taxpayer is entitled to statutory interest on the amount of tax it is determined to have overpaid.

There are large user fees associated with ADR-type programmes used to avoid litigation. An example is an advance pricing agreement, which is used to avoid transfer pricing disputes. The current user fee for filing a new advance pricing agreement request is USD113,500. The user fees for renewals and amendments are lower. For private letter rulings and pre-filing agreements, the current user fees are USD38,000 and USD181,500, respectively.

ADR is rare once a case is docketed in Tax Court. The Tax Court Rules provide for voluntary binding arbitration or non-voluntary mediation. Those procedures are rarely used, and the fees are not set forth in a rule. If the parties pursue ADR, the Tax Court would presumably address fees and who pays them in the order addressing the arbitration or mediation process. Mediation is common in the federal district courts. Local court rules often address payments for neutrals, which differ among courts. The Court of Federal Claims has flexible procedures that allow for various types of ADR, some of which are at no cost to the parties.

The United States Tax Court does not publish case statistics on its pending cases. Generally, as the only available prepayment forum, the Tax Court hears most tax cases, with 35,297 cases filed in 2021. In comparison, the United States district courts and the Court of Federal Claims hear far fewer tax cases. In 2020, taxpayers filed 319 new tax cases in the United States district courts, and in 2020 74 new tax cases were filed in the United States Court of Federal Claims.

There is no reliable data regarding the number of cases initiated and terminated each year relating to different taxes.

There is no reliable data available regarding the party (tax authority or taxpayer) that succeeds in litigation.

Taxpayers should fully develop their tax positions before filing their returns and be prepared for IRS review before the audit begins. This includes investigating the relevant facts, gathering appropriate substantiation, analysing applicable legal authorities, memorialising such analysis, and preserving material information. Ideally tax personnel will be integrated into the overall operation, leverage available technological and digital tools, and monitor relevant judicial, legislative, regulatory and tax administration developments.

During the audit, taxpayers should be prepared and proactive, take care in responding to information and document requests, preserve applicable privileges, communicate their tax positions clearly and in the strongest possible light, and involve outside advisors and experts early enough in the process to minimise the risk of a protracted dispute. Taxpayers should attempt to resolve the issue during the audit, if possible.

If a satisfactory resolution is not possible at the examination level, taxpayers should carefully consider the available administrative and judicial dispute-resolution procedures and pursue those most appropriate for their issues to maximise their ability to obtain a favourable result.