On November 3, 2017, the IRS announced the roll out of 11 Large Business and International Compliance Campaigns (LB&I). (See https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns-0). LB&I had announced on Jan. 31, 2017, the roll out of its first 13 campaigns to be implemented. (See https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns)
According to the IRS, LB&I continues to move toward issue-based examinations and a compliance campaign process in which the organization decides which compliance issues that present risk require a response in the form of one or multiple treatment streams to achieve compliance objectives. This approach makes use of IRS knowledge and deploys the right resources to address those issues.
A few of these campaigns are worth mentioning. The OVDP Declines-Withdrawals Campaign addresses individuals who applied for pre-clearance into the IRS Offshore Voluntary Disclosure Program (OVDP) but were either denied access to OVDP or withdrew from the program of their own accord. The IRS plans to follow up with these individuals through a variety of means including examination.
Another campaign, the Swiss Bank Program Campaign, targets individuals with undisclosed bank accounts and who have not to come forward and handled their offshore accounts. In 2013, the U.S. Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities. Banks that are participating in this program provide information on the U.S. persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations.
The IRS also is looking at foreign companies that do business in the United States but do not file a tax return. This campaign is called the Form 1120-F nonfiler and may impact certain companies engaged in business in Silicon Valley. Finally, there is the Individual Foreign Tax Credit (Form 1116). This compliance program targets individuals who file Form 1116 to claim a credit that reduces their U.S. income tax liability for the amount of foreign taxes paid on foreign source income. This campaign addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116.
Notably, the IRS may use soft letters encouraging voluntary self-correction and follow-up with issue based examinations when warranted. According to the IRS, a soft letter is an outreach letter to a taxpayer seeking information about a compliance issue but is not a formal examination of the taxpayer’s return. A soft letter is a way for the IRS to improve noncompliance with LB&I’s limited resources.
Taxpayers, who may be the subject of the IRS’ new campaigns, would be wise to seek the advice of competent tax counsel, who can evaluate the case, explain the options, and develop a defensible strategy.
The 11 campaigns selected for the November 3, 2017 roll out are:
- Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign
- Swiss Bank Program Campaign
- Foreign Earned Income Exclusion Campaign
- Verification of Form 1042-S Credit Claimed on Form 1040NR
- Agricultural Chemicals Security Credit Campaign
- Deferral of Cancellation of Indebtedness Income Campaign
- Energy Efficient Commercial Building Property Campaign
- Corporate Direct (Section 901) Foreign Tax Credit (“FTC”)
- Section 956 Avoidance
- Economic Development Incentives Campaign
- Individual Foreign Tax Credit (Form 1116)
The 13 campaigns selected for the initial rollout on January 31, 2017 are:
- IRC 48C Energy Credit Campaign
- OVDP Declines-Withdrawals Campaign
- Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters
- Micro-Captive Insurance Campaign
- Related Party Transactions Campaign
- Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign
- Basket Transactions Campaign
- Land Developers – Completed Contract Method (CCM) Campaign
- TEFRA Linkage Plan Strategy Campaign
- S Corporation Losses Claimed in Excess of Basis Campaign
- Repatriation Campaign
- Form 1120-F Non-Filer Campaign
- Inbound Distributor Campaign