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IRS Announces Five New Campaigns

Yesterday, the Large Business and International Division (“LB&I”) of the IRS announced five new compliance campaigns. This is in addition to the 40 previously announced campaigns discussed here.

The new campaigns are:

Individual Foreign Tax Credit Phase II

“Section 901 of the Internal Revenue Code alleviates double taxation through a dollar-for-dollar credit against U.S. tax on foreign-sourced income in the amount of foreign taxes paid on that income.

Individuals who meet certain requirements may qualify for the foreign tax credit. This campaign addresses taxpayers who have claimed the credit but do not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.”

Offshore Service Providers

“The focus of this campaign is to address U.S. taxpayers who engaged Offshore Service Providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets, generally, for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.”

FATCA Filing Accuracy

“The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the HIRE Act. The overall purpose is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions. Foreign Financial Institutions and certain Non-Financial Foreign Entities are generally required to report the foreign assets held by their U.S. account holders and substantial U.S. owners under the FATCA. This campaign addresses those entities that have FATCA reporting obligations but do not meet all their compliance responsibilities. The Service will address noncompliance through a variety of treatment streams, including termination of the FATCA status.”

1120-F Delinquent Returns Campaign

“The objective of the Delinquent Returns Campaign is to encourage foreign entities to timely file Form 1120-F returns and address the compliance risk for delinquent 1120-F returns. This is accomplished by field examinations of compliance risk delinquent returns and external education outreach programs. The campaign addresses delinquent-filed returns, Form 1120-F U.S. Income Tax Return of a Foreign Corporation.

Form 1120-F must be filed on a timely basis and in a true and accurate manner for a foreign corporation to claim deductions and credits against its effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year’s return. The filing deadline may be waived, in situations based on the facts and circumstances, where the foreign corporation establishes to the satisfaction of the commissioner that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F per Treas. Reg. Section 1.882-4(a)(3)(ii). LB&I Industry Guidance 04-0118-007 dated 2/1/2018 established procedures to ensure waiver requests are applied in a fair, consistent and timely manner under the regulations.”

Work Opportunity Tax Credit

“The IRS has agreed to accept the Work Opportunity Tax Credit (WOTC) year of credit eligibility issue into the Industry Issue Resolution (IIR) program (pursuant to Rev. Proc. 2016-19). This campaign addresses the consequences of WOTC certification delays and the burden of amended return filings. The campaign’s objective is to collaborate with industry stakeholders, Chief Counsel, and Treasury to develop an LB&I directive for taxpayers experiencing late certifications and to promote consistency in the examinations of WOTC claims.

Due to delays associated with the WOTC certification process, taxpayers are often faced with the burdensome requirement of amending multiple years of federal and state returns to claim the WOTC in the year qualified WOTC wages were paid. This requirement, coupled with any resulting examinations of this issue, is an inefficient use of both taxpayer and IRS resources. The IIR is intended to provide remedies to reduce taxpayer burden, promote consistency, and decrease examination time to most effectively use IRS resources.”

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As with the other campaigns, if you are a corporate taxpayer under LB&I’s jurisdiction and your return involves identified issues, it would be advisable to anticipate an audit and act accordingly.

 

 

IRS Announces Five New Campaigns

Yesterday, the Large Business and International Division (“LB&I”) of the IRS announced five new compliance campaigns.  This is on top of the 35  previously announced campaigns and discussed here.

The new campaigns are:

Restoration of Sequestered AMT Credit Carryforward Practice

“LB&I is initiating a campaign for taxpayers improperly restoring the sequestered Alternative Minimum Tax (AMT) credit to the subsequent tax year. Refunds issued or applied to a subsequent year’s tax, pursuant to IRC Section 168(k)(4), are subject to sequestration and are a permanent loss of refundable credits. Taxpayers may not restore the sequestered amounts to their AMT credit carryforward. Soft letters will be mailed to taxpayers who are identified as making improper restorations of sequestered amounts. Taxpayers will be monitored for subsequent compliance. The goal of this campaign is to educate taxpayers on the proper treatment of sequestered AMT credits and request that taxpayers self-correct.”

S Corporation Distributions

“S Corporations and their shareholders are required to properly report the tax consequences of distributions. We have identified three issues that are part of this campaign. The first issue occurs when an S Corporation fails to report gain upon the distribution of appreciated property to a shareholder. The second issue occurs when an S Corporation fails to determine that a distribution, whether in cash or property, is properly taxable as a dividend. The third issue occurs when a shareholder fails to report non-dividend distributions in excess of their stock basis that are subject to taxation. The treatment streams for this campaign include issue-based examinations, tax form change suggestions, and stakeholder outreach.”

Virtual Currency

“U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency.”

Repatriation via Foreign Triangular Reorganizations

“In December 2016, the IRS issued Notice 2016-73 (“the Notice”), which curtails the claimed “tax-free” repatriation of basis and untaxed CFC earnings following the use of certain foreign triangular reorganization transactions. The goal of the campaign is to identify and challenge these transactions by educating and assisting examination teams in audits of these repatriations.”

Section 965 Transition Tax

“Section 965 requires United States shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Taxpayers may elect to pay the transition tax in installments over an eight-year period. For some taxpayers, some or all of the tax will be due on their 2017 income tax return. The tax is payable as of the due date of the return (without extensions).”

As with the other campaigns, if you are a corporate taxpayer under LB&I’s jurisdiction and your return involves identified issues, it would be advisable to anticipate an audit and act accordingly.

 

 

IRS Announces Six New Campaigns

Yesterday, the Large Business and International Division (“LB&I”) of the IRS announced six new compliance campaigns. Faced with continued budget cuts, LB&I reprioritized its compliance work into designated “campaigns,” wherein it directs resources across taxpayers and industries on specific issues that face high risk of noncompliance. It announced the first 13 campaigns on January 31, 2017, added 11 more on November 3, 2017 and five more on March 13, 2018. The new campaigns focus on disparate foreign and domestic issues. They are:

(1) Interest Capitalization for Self-Constructed Assets
(2) F3520/3520-A Non-Compliance and Campus Assessed Penalties
(3) Forms 1042/1042-S Compliance
(4) Nonresident Alien Tax Treaty Exemptions
(5) Nonresident Alien Schedule A and Other Deductions
(6) Nonresident Alien Individual Tax Credits

In its announcement, the IRS describes each campaign in detail and how it may approach ensuring compliance with the campaign issue.

If a taxpayer has an item related to a campaign, it makes it that much more likely that her return will be selected for examination. Thus, it is important that taxpayers continue to keep up to date on the latest campaigns and make sure their files are audit-ready if a campaign may related to them.