Peter Barnes Talks to IRS Official John Hughes on IRS' APA Program Changes

Recent changes to the Internal Revenue Service program for advance pricing agreements allow the agency to make better use of economists in the program, its director, John Hughes, said Thursday.

The decision last month to restructure the Advance Pricing and Mutual Agreement Program, or APMA, into three groups from the original 12 allows Hughes to draw on economists when they're needed - and use them sparingly when they're not, he said. The official spoke with Peter Barnes of Caplin & Drysdale about APMA's recent reorganization and its current work at a National Foreign Trade Council conference in Washington.

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Barnes, meanwhile, said other governments' behavior in cross-border cases is not always principled. A problem that arises in double-tax cases rather than APAs is that "many other governments still use revenue metrics," he said - that is, they reward auditors for making adjustments.

The attorney saw this as a failure of tax administration - a point he said he had made often but to little effect.

"The perfect answer is that an audit finds no adjustments, because that means the return was filed properly the first time around," he said. "That's not a failed audit, that's a successful audit - it means your rules are clear, your taxpayers are compliant, and they filed their return and paid all the tax on day one."

Collecting additional revenue from audits or through bilateral negotiations "is not something to be saluted and celebrated," Barnes contended. "And hopefully we learn from it so that the next time we actually collect less because our compliance goes up."

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Excerpt taken from the article “IRS’ APA Changes Improve Access to Economists, Official Says” by Molly Moses for Law360 Tax Authority.