IRS announces issue-based campaign to increase tax compliance of large companies, international business

by Julie Martin

The US IRS has announced that it has selected 13 tax and transfer pricing topics that it will focus on in an issue-based campaign to increase the tax compliance of large and/or international businesses.

In a January 31 announcement, the IRS’ Large Business and International division (LB&I) said it will conduct tax examinations and a “compliance campaign process” that focuses on these particular areas of tax noncompliance.

The campaign process will involve “multiple treatment streams” to achieve compliance objectives, LB&I said.

Among the 13 issues identified, the “Related Party Transactions Campaign” will focus on transactions between commonly controlled entities in the mid-market that provide taxpayers with a means to transfer funds from a corporation to related pass through entities or shareholders, LB&I said.

The “Micro-Captive Insurance Campaign” will address transactions described in Notice 2016-66, where a taxpayer reduces aggregate taxable income using contracts treated as insurance contracts and a related company that the parties treat as a captive insurance company.

The treatment stream for both campaigns will be issue-based examinations, the IRS unit said

The “Inbound Distributor Campaign” will focus compliance efforts on US distributors of goods sourced from foreign-related parties that have incurred losses or small profits on US returns, which are not commensurate with the functions performed and risks assumed, LB&I said.

LB&I said it has developed a training strategy for agents to examine transfer pricing issues in such cases. The treatment stream for this campaign will be issue-based examinations, LB&I added.

A “Repatriation Campaign” will focus on structures used by the mid-market population being used for tax free repatriation of funds into the US.

“The goal of this campaign is to simultaneously improve issue selection filters while conducting examinations on identified, high risk repatriation issues and thereby increase taxpayer compliance,” the IRS unit said.

LB&I said that data suggests that many foreign companies doing business in the US are not meeting their filing obligations.  As such, agency has devised a “Form 1120-F Non-Filer Campaign.”

LB&I said it will use various external data sources to identify these foreign companies and encourage them to file their required returns.

“The treatment stream for this campaign will involve soft letter outreach. If the companies do not take appropriate action, LB&I will conduct examinations to determine the correct tax liability,” the agency said.

Additional areas for future campaigns will be identified in the coming months, the tax unit said.

The 13 campaigns selected for this initial roll out are titled as follows:

• IRC 48C Energy Credit Campaign
• OVDP [Offshore Voluntary Disclosure Program] 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 Campaig
• 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

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Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at [email protected].

@mnetax

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Julie can be reached at [email protected].