IRS increases focus on permanent establishment issues

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The IRS has historically considered the examination of permanent establishment (PE) issues as a low priority because PE issues are difficult to identify and difficult to develop. Over the last few years, however, they have had several projects to examine protective returns. We believe the results of those examinations have not been productive because the IRS agents were not properly trained to conduct a functional analysis and were not equipped to look at the proper records and ask the right questions. As a result of the poor results of these projects, it is our understanding that the International Division of the IRS is going to try a new approach.

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