The Internal Revenue Service (IRS) is always looking for ways to streamline their examination and tax compliance processes. In November 2017, the Large Business and International (LB&I) group announced a second initiative to their compliance campaign. The original LB&I campaign announced on January 31, 2017 had introduced 13 initial campaigns that were highlighted under the issue-based examination. The November 3rd, 2017 announcement added 11 new campaigns and outlined a brief description and the treatment streams for each one. These 24 compliance campaigns strive to focus on the issues that present risk, using the right resources and performing the examinations in the most efficient manner. Below are some of the 24 campaigns that are most relevant to the mid-market taxpayers and outlined them below:
Form 1120-F Non-Filer and Chapter 3 & 4 withholding – The Chapter 3 & 4 campaign focuses on the verification of information submitted before the claim for refund is allowed. Additionally, the Form 1120-F Non-Filer campaign is seeking to find taxpayers who have failed to properly file Form 1120-F.
Foreign Earned Income Exclusion – This Campaign will focus on the taxpayers who claim the foreign earned income exclusion on their returns but do meet the requirements for the benefit.
Verification of Form 1042-S Credit Claimed on 1040-NR – This campaign is meant to ensure that the credit claimed on Form 1040-NR is verified and whether the corresponding form 1042-S was filed.
Corporate Direct (Section 901) Foreign Tax Credit – This campaign will focus on Corporations who have taken advantage of the Section 901 foreign tax credit and will try to identify taxpayers who may have improperly calculated the credit.
Section 956 Avoidance and Repatriation Campaign – This campaign focuses on corporate taxpayers who should have included certain income from foreign activities but failed to do so on their return. The repatriation campaign will target various tax structures used by companies to bring money back into the US tax-free. The LB&I will seek to ensure that the transactions are properly reported on the tax returns.
Individual Foreign Tax Credit – This campaign will concentrate on taxpayers who claim the foreign tax credit on their personal returns and that may have incorrectly computed the credit.
Related Party Transactions and Inbound Distributor – The Related Party campaign will focus on transactions between commonly controlled entities that provide the mid-market taxpayers a means to transfer funds between related parties and avoid taxation. Another campaign that goes hand-in-hand with related party transactions is the Inbound Distributor campaign. This campaign will focus on U.S. distributors of goods sourced from foreign-related parties that have incurred losses or small profits to ensure that the transaction was at arms-length and properly calculated.
S-Corporation Losses Claimed in Excess of Basis – LB&I will be looking into S-Corporations whose shareholders have claimed losses for which they did not have sufficient stock basis.
Land Developers using Completed Contract Method – This campaign will be looking at land developers in more detail to ensure that the Completed Contract Method is properly calculated.
The process to identifying taxpayers with the issues above will vary from soft letters requesting additional information to be submitted, issue-focused examinations, development of externally published practice units and published guidance. Please consult with your tax advisor if you were selected for examination or received any soft letters with regards to any of the campaigns initiated by the LB&I group.