United States

Updates on the new IRS LB&I Division compliance campaigns


The IRS participated in a one-hour LB&I compliance webcast on June 20 as part of its efforts to provide tax practitioners with additional information on how its new compliance campaigns will operate. The webcast focused on the section 48C Energy Credit Campaign and the Land Developers - Contract Method Campaign.

Land Developers - Completed Contract Method (CCM) Campaign

One of the 13 IRS-identified campaigns targets large land developers that are improperly using the completed contract method (CCM) of accounting. A developer, whose average annual gross receipts exceed $10 million, may only use the CCM under a home construction contract. The IRS’ concern is that, in some cases, developers are improperly deferring all gain until the entire development is completed.

Similarly to many other LB&I campaigns, the treatment stream for this campaign includes the development of a practice unit, issuance of soft letters, and a follow-up with issue-based examinations when warranted. However, according to a statement by webcast participant Pete Puzakulics, IRS Director of Corporate Issues and Credits in the Enterprise Activities Practice Area, some exams under this campaign may be conducted without taxpayers first receiving notice through a soft letter.

A facts and circumstance test will be applied to determine whether taxpayers changing their method of accounting away from the CCM could get audit protection, according to LB&I director Levena Williams. Taxpayers would not receive audit protection if the return was under examination and the CCM had been identified as an issue. However, the taxpayer would generally receive audit protection if there was no examination when the accounting method change occurred.

Little guidance was provided with respect to the breadth of the campaign. According to Puzakulics, the campaign is still in the development stage and that the IRS is in the process of identifying which taxpayers that utilize the CCM will be included in the campaign. This campaign, however, only applies to large businesses with assets of $10 million or more.

Examinations under this campaign have yet to begin and no soft letters have been issued. No firm date was provided as to when either of the latter will take place.

IRC 48C Energy Credit Campaign

The second campaign addressed in the webcast is directed towards taxpayers who claim the section 48C credit for advanced energy projects. Generally, the Qualifying Advance Energy Project tax credit permitted under section 48C is a credit for businesses which establish, expand or re-equip a manufacturing facility for the production of various types of advanced energy property. According to the IRS, the IRC 48C Energy Method Campaign will ensure that only those taxpayers whose advanced energy projects were approved by the Department of Energy, and who have been allocated a credit by the IRS, are claiming the credit. Similarly to the Land Developers - Completed Contract Method (CCM) Campaign, the treatment stream for this campaign will be soft letters and issue-focused examinations.

According to Kathy Robbins, director of the Enterprise Activities Practice Area, the campaign replaces the compliance initiative project (CIP) previously used to audit the section 48C credit. Nonetheless, the campaign will operate very similarly to the CIP and not all returns claiming the section 48C credit will be examined.   

During the webcast, Robbins stated the campaign will address two specific IRS concerns. The first concern revolves around taxpayers who claimed the credit but were not specifically approved for the credit. Under the CIP process, taxpayers would receive soft letters from LB&I requesting proof of allocation and certification. According to Robbins, a similar process with the use of soft letters will be employed under the new campaign approach.

The second concern revolves around taxpayers who claimed the credit and were speficially approved for the credit. According to Puzakulics, LB&I will use issue-focused examinations to address the post-approval requirements to claim the credit. Specifically, some of the issues focused upon will be whether the property to which the credit applied was constructed in accordance with the  agreement between the taxpayer and the IRS, whether the property was located within the United States, whether there were any significant modifications to the property after the credit application was submitted, whether the property was placed into service in the correct timeframe, and whether the taxpayer appropriately reduced the basis in the property.


The IRS has stated that more campaigns will continue to be identified and launched in the coming months. For now, however, taxpayers engaging in activities involving either the Land Developers - Completed Contract Method (CCM) Campaign or the IRC 48C Energy Credit Campaign should contact their tax advisors to ensure they are prepared for any potential IRS activity.

For general information on the 13 LB&I campaign, see , please see our Large Business and International division releases 13 campaigns.

Patti Burquest


Patti has extensive experience handling IRS examination and appeals matters for all types of business. Reach her at patti.burquest@rsmus.com.

Areas of focus: Tax ControversyWashington National Tax