Man analyzes a report at a computer
Case Study

Baker Tilly helps US subsidiary of foreign manufacturer with excise tax audit

Man analyzes a report at a computer
Case Study

Baker Tilly helps US subsidiary of foreign manufacturer with excise tax audit

Our client’s need

Our client is the US subsidiary of a foreign heavy truck manufacturer, whose foreign parent contracts directly with large U.S. trucking companies. As required by the Internal Revenue Code, the foreign parent historically filed US excise tax returns and paid the excise tax on the sales to large US trucking companies. The Internal Revenue Service (IRS) was not comfortable with the risk that this foreign taxpayer would continue to report and pay excise tax on the US domestic sales. The IRS executed closing agreements with the large US trucking companies, contrary to applicable law, whereby the large US trucking companies would report and pay the excise tax on the heavy truck sales. Subsequent to the first year of this arrangement, the IRS began an excise tax audit of the client to “test” the parties’ compliance with the closing agreements. When the client could not produce records of the foreign parent having reported and paid the excise tax on the sales of heavy trucks to the large U.S. trucking companies, the IRS proposed an $18.7 million excise tax adjustment against the client.

Baker Tilly’s solution

The client had two options:  1) Continue to work with the IRS agent with the goal of moving the case to IRS Appeals; or 2) “Go-up the chain-of-command” of the IRS to reverse the proposed excise tax adjustment. Baker Tilly’s Tax Advocacy and Controversy Services (TACS) practice devised a plan to contact the management professionals in the IRS’s chain-of-command leading ultimately to the Commissioner of the IRS if necessary. Despite the fact that everyone is working remotely during the COVID-19 pandemic, using their connections within the federal government, Baker Tilly’s Tax Advocacy and Controversy Services professionals put together a matrix of phone and fax numbers, and email addresses of IRS managing professionals.

Results

The Baker Tilly Tax Advocacy and Controversy Services practice had to go-up four levels of management to find an IRS professional who could make the right judgment for our client. Messaging was sent from IRS upper management to the IRS audit team to drop the exam against the client and to pursue the US trucking companies to “test” the IRS’s closing agreements.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

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