Yesterday, the Large Business & International (“LB&I”) section of the IRS announced 3 more campaigns. Our previous post about the campaigns can be found here.
The new campaigns are focused on international and transfer pricing related issues. They are:
Captive Services Provider Campaign
Practice Area: Treaty and Transfer Pricing Operations
Lead Executives: Jennifer Best, director, Treaty and Transfer Pricing Operations; and John Hughes, director, Advanced Pricing and Mutual Agreement
The section 482 regulations and the OECD Transfer Pricing Guidelines provide rules for determining arm’s length pricing for transactions between controlled entities, including transactions in which a foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group.
The arm’s length price is determined by taking into consideration data available on companies performing functions, employing assets, and assuming risks that are comparable to those of the captive subsidiary.
Excessive pricing for these services would inappropriately shift taxable income to these foreign entities and erode the U.S. tax base. The goal of this campaign is to ensure that U.S. multinational companies are paying their captive service providers no more than arm’s length prices. The treatment streams for this campaign are issue-based examinations and soft letters.
Offshore Private Banking Campaign
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
U.S. persons are subject to tax on worldwide income from all sources including income generated outside of the United States. It is not illegal or improper for U.S. taxpayers to own offshore structures, accounts, or assets. However, taxpayers must comply with income tax and information reporting requirements associated with these offshore activities.
The IRS is in possession of records that identify taxpayers with transactions or accounts at offshore private banks. This campaign addresses tax noncompliance and the information reporting associated with these offshore accounts. The IRS will initially address tax noncompliance through the examination and soft letter treatment streams. Additional treatment streams may be developed based on feedback received throughout the campaign.
Loose Filed Forms 5471
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions. Some taxpayers are incorrectly filing Forms 5471 by sending the form to the IRS without attaching it to a tax return (or partnership or exempt organization return, if applicable).
If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.
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As with the other campaigns, if you are a taxpayer under LB&I’s jurisdiction and your return involves identified issues, it would be advisable to anticipate an audit and act accordingly.
