When it comes to international tax research questions, do your eyes glaze over? Do you run for the hills or hide under your desk? Fear not. This article will help you “fake it ‘til you can make it.” And, in these days of cost-conscious clients, you will be a hero with all the free or low-cost information you find.
While most law librarians and professional researchers have access to fee-based resources, your tax dollars have been working to create some excellent tools. However, these resources are often hidden down that rabbit hole called the Internal Revenue Service (IRS) website. The goal of this article is to expose the wealth of international tax information that can be found at the IRS and other government websites, either as a research starting point or to obtain a plain English explanation of a tax issue.
Tax Research Techniques
There are many books, articles and LibGuides written on how to do general tax research. Every librarian knows (or should know) that the primary tax sources consist of the Code, regulations and tax cases. However, there is a large group of research “things” that are collectively described as “guidance,” including letter rulings, directives, and more. “Guidance” is where the action is at the IRS. These sources and guidance items also are used in U.S. international taxation, so I mention them here. Start here to understand what these are and where to find them. Most of these items find their way to the Internal Revenue Bulletins (IRB).
From the IRS website: “Rulings and procedures reported in the IRB do not have the force and effect of Treasury tax regulations, but they may be used as precedents. In contrast, any documents not published in the IRB cannot be relied on, used, or cited as precedents in the disposition of other cases.” Revenue rulings and procedures can also be found in the Electronic Reading Room, which is a treasure trove for the tax researcher.
Reference tip: when discussing a research project with a client, be sure to ask what the Code and regulation sections are, in addition to the topic keywords. You may need both in your research. Interestingly, the IRS research tools, publications and forms seldom provide citations to the IRC and CFR! Keyword searching is best.
A Few Facts about U.S. International Taxation
U.S. citizens and residents are taxed on income worldwide. This is different from most other countries that only tax their residents on domestic income. U.S. citizens and residents living in a foreign country may be taxed on income earned in the host country as well, but there are U.S. rules and treaties that prevent double taxation.
Business entities face more complicated rules depending on their format (corporations or partnerships). Indeed, some transactions are tax-free until revenue comes back to the U.S. Today’s business headlines reflect the current international tax topics of international drug company mergers, inversions, and the repatriation of offshore income.
The Dreaded IRS
Let’s face it. The IRS, the largest bureau of the Treasury Department, is not the most popular government agency these days. Although the underlying premise of our tax system is that payment of taxes is voluntary, the IRS plays an important role in enforcement and compliance. Congress’ investment in the IRS is a good deal because the IRS collects about $6 for every dollar of its budget: U.S. Department of the Treasury, The Budget in Brief, Internal Revenue Service: FY 2015, page 4.
Despite this fact, Congress has not been kind to the IRS. Budget cuts have forced it to reduce staff and cut back on training. Getting good personal service can be difficult. Even tax professionals (enrolled agents, tax lawyers and CPAs) have trouble getting through on their dedicated Practitioners’ Hot Line. In recognition of its dwindling resources, the IRS has focused on making its website more robust and user-friendly.
Primary Sources on the IRS Website & Elsewhere
- Internal Revenue Code: Provided by the Cornell Legal Institute.
- Proposed regulations: From Regulations.gov, a partner site to the IRS that covers government regulations and other guidance open for comment (not just the IRS).
- Final and temporary regulations are published in the Federal Register and the Code of Federal Regulations (CFR).
- Treasury (Tax) Regulations.
- Revenue Rulings and Revenue Procedures.
- Other published IRS positions (e.g., Notices and Announcements) These are found in the Internal Revenue Bulletins. They are also announced in the various IRS email alerts available by free subscription. The IRS Guidewire is one example.
Primary Sources Not on the IRS Website
- Tax cases. Sorry, you will have to use one of the many commercial services for these. For example, both WestlawNext and Lexis Advance databases contain files of the various types of tax cases. Note that international tax cases are notoriously complicated: not only do these cases involve the IRS and the Department of Treasury, but sometimes the application of foreign tax laws on international income.
The International Tax Topic Index is quite useful as a starting point for issues related to both individuals and business entities. This is not an IRS website but a partner site with information provided by the IRS. It is an excellent and comprehensive resource and includes links to information pages for countries with which the U.S. has an income tax treaty. However, this Index does not appear on the landing page of the IRS.gov site.
International Taxation and Individuals
As stated above, U.S. citizens and residents are taxed on worldwide income and have the same filing requirements as those living in the U.S. U.S. citizens or residents living and working in a foreign country may be subject to taxes in that country in addition to U.S. taxes. Tax treaties spell out the agreements as to how individuals will be taxed and U.S. tax rules give some relief to this potential double taxation.
Here are key IRS pages for research:
- International Tax Topic Index: See Finding Tools, above. Useful for taxpayers who have some kind of international filing requirement.
- International Taxpayers: An excellent starting page for the many aspects of this topic from taxpayers living abroad, foreign students studying on visas here, and more. See the sidebar for links to videos and other interactive tools.
- US Citizens and Resident Aliens Abroad: Includes the contact information for the Philadelphia unit that handles questions for taxpayers who live abroad. It is one of the few IRS units still answering the phone!
- Foreign Earned Income Exclusion: U.S. citizens and residents working abroad get an exclusion for income on foreign earnings.
International Taxation and Business Entities
The IRS has four main divisions:
- Wage and Investment
- Large Business and International [LB&I]
- Small Business/Self-Employed
- Tax-Exempt and Government Entities.
The LB&I Division handles issues pertaining to the largest business entities and various international programs under an international Deputy Commissioner. These programs include international strategy, tax treaties, international taxpayers, international business compliance, international individual compliance, the Offshore Voluntary Disclosure Program (OVDP) and transfer pricing. The Treasury Department is also involved with international businesses and has a section on tax policy.
These are key IRS pages for research:
- International Tax Topic Index: as noted above under Finding Tools; start here for a topic — web links, revenue procedures and publications are retrieved.
- Large Business and Industry Tax Center.
- Senior Leadership Team and Contact Information: Names of the leadership team and contact information for the Division. It is valuable to have a phone number that is actually answered at the IRS.
- LB&I Directives: Provides administrative guidance for the LB&I examiners. Provides insight into IRS positions. Not to be confused with other IRS Guidance.
- Tax Information for International Businesses: This key page provides links to various topics facing international business, including transfer pricing and FATCA (see below).
- Miscellaneous International Tax Issues: Here’s a list that I have not seen before! Includes Expatriation Tax, which is the procedure used for citizens who want to renounce their citizenship.
The Internal Revenue Manual
Another tool worth a brief mention is the Internal Revenue Manual (IRM). The IRM is a compilation of employee procedures for IRS personnel. It is not authoritative and neither IRS personnel nor taxpayers are bound by it. However, its contents are invaluable for knowing ahead of time how the IRS is likely to act in an exam or audit.
In February 2015, IRM Part 4, “Examining Process, ” Chapter 60, “International Procedures”, Section 4 “LB&I International Programs” was revised. A review will provide an excellent overview of the international operations of the LB&I.
Take note that using the IRM on the IRS website is difficult. It is best to go to the table of contents at the start. Unfortunately the basic search box on the front page of IRS.gov does not drill down to the contents of the IRM and there is no free text search box just for the IRM. It is also not hyperlinked to the places in the IRS website where the code, regulations and other guidance items can be found.
IRS Forms and Publications
IRS forms and publications can be enormously informative about a part of the tax code. However, they are not included in the list of primary sources above because they are not considered to be authoritative. Even though these are written by IRS personnel, researchers cannot depend on the language as authority in case of an IRS dispute. This was an important point emphasized to me during my Enrolled Agent training. Ironic, as taxpayers use forms and publications as their primary source of tax information! The following is from the IRM (see above) at 126.96.36.199.8 (01012006).
“IRS Publications are intended to explain the law in plain language for taxpayers and their advisors. Typically changes in the law are highlighted. Examples illustrating IRS positions are provided and worksheets included. IRS Publications are nonbinding on the Service and do not necessarily cover all positions for a given issue. While a good source of general information, publications should not be cited to sustain a position.”
There is probably an IRS publication on any tax topic you can imagine. Enter “international” in the search box on the “Current” tab of the “Form & Publications” page and scan the long list of various forms and publications pertaining to international topics, such as international boycotts, Domestic International Sales Corporations, and more. Publications pertaining to international taxation include:
- IRS Pub 54: Tax Guide for US Citizens and Resident Aliens Abroad
- IRS Pub 516: US Government Civilian Employees Stationed Abroad
- IRS Pub 519: US Tax Guide for Aliens.
Fairly new is the IRS’s ebook site that works on mobile devices and Apple’s iPad. Not all publications are available in this format yet, but Publications 54 and 516 referenced above are available. More titles are being added.
Income tax treaties are an essential component of international taxation. These are agreements with other countries giving a reduced (or no tax) rate on income earned in that country. The link to the current tax treaties can be found at US Income Tax Treaties A to Z. Update that information on the Treasury website and here for the most recently ratified treaties and agreements.
Foreign Account Tax Compliance Act (FATCA)
FATCA is not a tax law, but a law about financial compliance and reporting for individuals and financial institutions to report foreign-held bank accounts and certain types of assets. In our post-9/11 world, these rules and regulations have become a significant reporting requirement. Individuals must indicate on their tax return if they hold a foreign bank account and follow up with another form. In November 2015, the IRS announced upgrades to the FATCA system. The number of IRS information pages and tools devoted to FATCA underscores the importance of this law:
- Find answers to questions about FATCA .
- FATCA Current News: This page includes recent updates, guidance and news.
- FATCA FAQ’s.
- Subscribe to a newsletter about FATCA: for the just released guidance and news.
- FATCA regulations and guidance.
- FATCA related forms.
- Department of Treasury Fact Sheet 2013: An explanation of the regulations recently updated to implement FATCA.
Affordable Care Act
Congress gave the IRS the responsibility for administering the Affordable Care Act (ACA), but appropriated no extra funds to do so. This is mentioned here because U.S. citizens living abroad are exempt from the requirement to obtain coverage and will not be penalized if coverage is not obtained.
Keeping Up with U.S. International Taxation
The IRS offers several tools to keep up in this area. Some of specific to the area, others are general updates, which will include as appropriate news of international taxation.
- IRS Newswire: News releases from the IRS. Comes several times a week.
- IRS Guidewire is an e-mail with a link to the day’s revenue rulings, revenue procedures, notices and announcements on IRS.gov.
- Subscribe to a newsletter about FATCA: for the just released guidance and news.
The Priority Guidance Plan provides a glimpse into future IRS projects. The Service has 277 projects that are a priority for the period ending June 2016. Warning: reading this list is not for the faint-hearted. It is written in very technical terms with Code and Rev Proc and Rev Ruling references and there is no full text search feature.
The IRS recognizes that the world is changing. In its Strategic Plan 2014-2017 it acknowledges that we exist in a global economy: business models are changing and the Service needs to respond to those changes. The Plan also recognizes the increasing digital interaction with the IRS. I suspect that international tax resources will only improve and expand.
The IRS website and its related websites provide a wealth of information if you know where to look. Though it is not a perfect resource, use it to take a tour of its offerings and to get a flavor of the issues you are asked to research. Your tax dollars at work!
Donna M. Tuke (JD, MLS, EA) is a law librarian, licensed attorney and an Enrolled Agent (EA). EAs are licensed by the IRS to represent taxpayers in front of the IRS nationwide (vs. her Illinois only law license). During tax season she works for the Center of Economic Progress (CEP) as a site manager for one of the 14 income tax preparation sites CEP operates around the city for low income taxpayers. Donna is passionate about legal reference work, tax preparation and research. She is currently looking to re-enter the law librarianship profession full-time.