IRS LB&I campaigns and transactions of interest
INSIGHT ARTICLE |
Businesses and individuals with assets of $10 million or more are typically audited through the Large Business and International (LB&I) division of the IRS. With constrained resources, the LB&I has had to focus its resources on at-risk compliance issues. Consequently, the IRS periodically has announced campaigns to address issues of high importance.
IRS campaigns reflect LB&I’s priority of having issue-focused examinations, and compliance campaigns to promote tax compliance. The use of data analytics, information gleaned through electronically filed tax returns, has helped LB&I improve its selection of tax returns and issues to examine to address compliance risks.
Currently, LB&I has identified over 50 campaigns. These campaigns were identified through LB&I extensive data analysis, suggestions from IRS compliance employees and feedback from the tax community. The IRS periodically announces additional campaigns as warranted.
LB&I's goal is to improve return selection, identify issues representing a risk of noncompliance, and make the greatest use of limited resources. Although campaigns identify issues for the IRS to examine, LB&I may use other methods of addressing high-risk issues. LB&I could address issues through additional guidance, new regulations or practitioner outreach to alert taxpayers to IRS concerns.
Transactions of interest
The IRS has also identified “listed transactions” and “transactions of interest” that the IRS regards as abusive transactions. A listed transaction is a transaction the IRS deems to be abusive, or considered a tax shelter. A transaction of interest is a transaction the IRS believes has the potential for abuse, but is still gathering information to understand the transaction. Taxpayers engaged in either a listed transaction or a transaction of interest are required to disclose the transaction to the IRS on Form 8886.
Listed transactions have more serious consequences than campaigns. Failure to disclose a listed transaction can result in a penalty being assessed. In addition, there are reporting requirements for promoters—individuals or entities involved in selling or promoting these transactions to investors as tax advantaged strategies. Campaigns represent issues the IRS is interested in, but do not have formal reporting requirements.
In preparing for an IRS exam, taxpayers should be aware of tax issues the IRS has identified in LB&I’s campaigns. For taxpayers entering into transactions that have significant tax reductions, reviewing the IRS’ listed transactions will provide information on whether the IRS has identified the transaction as potentially abusive and requires disclosure by both the taxpayer and the promoter. Understanding these issues and the IRS’ positions will help in preparing for an examination.