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RARs, federal waivers, and competent authority agreements
How they trigger and complicate state tax compliance
Corporations that have been audited by the Internal Revenue Service desire a quick, fair resolution of their disputed tax liabilities. However, the conclusion of a federal audit does not always provide immediate relief, as this event normally triggers time-sensitive, state notification requirements for adjustments made to a taxpayer's federal return.
Corporate taxpayers are often faced with the daunting task of amending hundreds of state tax returns, many of which are due within a short time frame. This process is rarely straightforward and is often fraught with complicated issues stemming from variations in state notification rules. Additionally, it is important that taxpayers are aware of other circumstances, such as Competent Authority Agreements² and federal statute of limitation waivers, which can impact state return filings.
This article seeks to identify and discuss several of these issues with the hope of raising taxpayer awareness and knowledge of this complex subject. Some issues the authors cover include:
- IRS audit closing procedures
- Final determination for state purposes
- Partial agreements
- State notification procedures
- Impact of federal adjustments
- Amnesty programs
- State impact of competent authority agreement
- State impact of federal waivers
By Michelle Gallagher, Matthew Laney, Colette Karam, and Sheldon Michaelson of Deloitte Tax LLP, originally published in Bloomberg BNA "Tax Management Weekly State Tax Report" on October 28, 2011
² A Competent Authority Agreement is an agreement between the IRS and a foreign tax authority affecting a U.S. taxpayer’s U.S. federal tax liability and foreign tax liability. These agreements are made pursuant to Mutual Agreement Procedure (MAP) settlements. While the terminology can be used interchangeably among practitioners, the IRS is likely to refer to the MAP settlement process.