United States

IRS releases several new international compliance campaign items

TAX ALERT  | 

The IRS’s Large Business and International (LB&I) division has recently announced several new international tax compliance campaigns as part of its most recent compliance campaign release. Initially rolled out in Jan. of 2017, the LB&I division will be targeting several specific compliance issues as part of a new audit strategy referred to as ‘campaigns.’ This campaign based audit strategy is designed to help build a supportive infrastructure inside LB&I and redefine large business compliance work. Taxpayers should take note because these campaigns are important indicators of where the IRS will spend its audit resources. For example, we have learned that the IRS has recently opened a large number of audits (over 50 in one city alone) in major cities across the U.S. to support only one of the international campaign topics.

The initial wave of campaigns, released on Jan. 31, 2017, identified 13 issue-based compliance campaigns–ranging from partnerships to energy tax credits–that included several campaigns directed at foreign businesses and taxpayers. Since the initial January rollout, the LB&I division announced a multitude of new campaigns in four different releases (Nov. 2017, March 2018, May 2018 and July 2018), which have included a myriad of additional issue-based campaigns directed at foreign businesses and taxpayers.

To date, the LB&I division has identified and selected 18 issued-based compliance campaigns directed at foreign business and taxpayers. Below is a listing of the international tax specific campaigns, along with the specific practice area, treatment stream (planned IRS method of addressing noncompliance) and the lead executive. Additionally, as part of the May 2018 announcement, the IRS acknowledged that some of the previously announced campaigns may require modification as a result of the enactment of the Tax Cuts and Jobs Act, and is planning on communicating the results of any modifications at a later date.

Of particular note to international taxpayers is the LB&I division’s continued focus on the new one-time repatriation tax, as well as its newly announced campaign regarding virtual currency withholding and compliance. With this release, the total number of campaigns focused on or addressing repatriation or the new one-time repatriation tax now total four–ranging from simply ‘repatriation’ up to ‘repatriation via foreign triangular reorganizations’–and underscore the IRS’ continued focus on this complex area.

In addition to the continued focus on repatriation, the LB&I division has now issued their first campaign item regarding virtual currency. This campaign is set to focus on noncompliance with respect to virtual currency transactions, but the release provides little detail in regards to the how the IRS will address noncompliance–saying only that multiple treatment streams will be used, including outreach and examination. However, the release does note that the service is not considering the use of a specific voluntary disclosure program to address noncompliance with respect to virtual currency transactions. This may signal a reluctance to offer leniency to taxpayers with previously undisclosed virtual currency transactions.

For more information regarding virtual currency transactions, see our prior article: Bitcoin tax: More than just reporting income

For those with an international presence or dealing with international tax issues, the campaigns listed below are likely to be very relevant. Accordingly, taxpayers and practitioners alike should make sure they are aware of, and familiar with, these international tax issue-based compliance campaigns as they progress through the compliance season.

Campaign

Practice area

Treatment stream

Lead executive

OVDP Declines-Withdrawals

Withholding & International Individual Compliance

Various, including examination and letters

Pamela Drenthe

Repatriation

Cross Border Activities

Improved issue selection filters

 

Identification of high risk areas

John Hinding

Form 1120-F Non-Filer

Cross Border Activities

Soft letter outreach

 

Selected examination

John Hinding

Inbound Distributor

Treaty and Transfer Pricing Operations

Issued based examinations

Sharon Porter

Form 1120-F Chapter 3 and Chapter 4 Withholding

Withholding & International Individual Compliance

Various, including examinations

John Cardone

Swiss Bank Program

Withholding & International Individual Compliance

Various, including examination and letters

John Cardone

Foreign Earned Income Exclusion

Withholding & International Individual Compliance

Various, including examinations

John Cardone

Verification of Form 1042-S Credit Claimed on Form 1040NR

Withholding & International Individual Compliance

Various, including examinations

John Cardone

Corporate Direct (Section 901) Foreign Tax Credit (“FTC”)

Cross Border Activities

Issued based examinations

John Hinding

Section 956 Avoidance

Cross Border Activities

Issued based examinations

John Hinding

Individual Foreign Tax Credit (Form 1116)

Western Compliance Practice Area

Various, including examinations

Paul Curtis

F3520/3520-A Non-Compliance and Campus Assessed Penalties (Foreign Trusts)

Withholding & International Individual Compliance

Various, including examinations and penalty assessment

John Cardone

Forms 1042/1042-S Compliance

Withholding & International Individual Compliance

Various, including examinations

John Cardone

Nonresident Alien Tax Treaty Exemptions

Withholding & International Individual Compliance

Various, including outreach/education and traditional examinations

John Cardone

Nonresident Alien Schedule A and Other Deductions

Withholding & International Individual Compliance

Various, including outreach/education and traditional examinations

John Cardone

 

Virtual Currency

 

Withholding & International Individual Compliance

Various, including outreach and examinations

John Cardone

Repatriation via Foreign Triangular Reorganizations

 

Cross-Border Activities

Educating and assisting examination teams in audits

John Hinding

Section 965 Transition Tax

 

Cross-Border Activities

Outreach campaign

John Hinding

 

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