Did you know that IRS is running 35 Campaigns? was published by JD Supra on 7/13/18.
In January 2017, the IRS Large Business and International Division initially announced the launch of a “compliance campaign process” in which IRS identifies compliance issues that present risk and require a response in the form of one or multiple treatment streams to achieve compliance objectives. The launch of compliance campaigns makes use of IRS knowledge and deploys the right resources to address identified issues. The campaigns are based on data analysis, suggestions from IRS compliance employees and feedback from the tax community.
In the initial roll out, 13 campaigns were launched:
⦁ IRC 48C Energy Credit Campaign: ensures 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.
⦁ OVDP Declines-Withdrawals Campaign: addresses (Offshore Voluntary Disclosure Program) OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord.
⦁ Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters: identifies taxpayers that are asserting that they are the producers of a qualified film when distributing channels and subscriptions packages that often include third-party produced content.
⦁ Micro-Captive Insurance Campaign: looks at taxpayers that attempt to reduce aggregate taxable income using contracts treated as insurance contracts and a related company that the parties treat as a captive insurance company.
⦁ Related Party Transactions Campaign: focuses on transactions between commonly controlled entities that provide taxpayers a means to transfer funds from a corporation to related pass through entities or shareholders.
⦁ Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign: address uncertainties on issues such as amounts to be taken into account in determining tax reserves for both deferred variable annuities with Guaranteed Minimum Benefits, and Life Insurance contracts.
⦁ Basket Transactions Campaign: addresses structured financial transactions in which a taxpayer attempts to defer and treat ordinary income and short-term capital gain as long-term capital gain.
⦁ Land Developers – Completed Contract Method (CCM) Campaign: some large land developers are improperly deferring all gain until the entire development is completed.
⦁ TEFRA Linkage Plan Strategy Campaign: revise processes to assess tax on pass-through entities.
⦁ S Corporation Losses Claimed in Excess of Basis Campaign: looks into shareholders that claim losses and deductions to which they are not entitled because they do not have sufficient stock or debt basis to absorb these items.
⦁ Repatriation Campaign: looks at different repatriation structures being used for purposes of tax free repatriation of funds into the U.S. in the mid-market population and how many of the taxpayers do not properly report repatriations as taxable events on their filed returns
⦁ Form 1120-F Non-Filer Campaign: Many foreign companies doing business in the U.S. are often required to file Form 1120-F and many are not meeting their filing obligations.
⦁ Inbound Distributor Campaign: evaluates Treaty and Transfer Pricing Operations and arms-length transactions.
On November 2017, IRS rolls out 11 additional compliance campaigns:
⦁ Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign: verifies withholding at source for 1120-Fs claiming refunds.
⦁ Swiss Bank Program Campaign: addresses noncompliance involving taxpayers who are or may be beneficial owners of Swiss bank accounts through a variety of treatment streams including examinations and letters.
⦁ Verification of Form 1042-S Credit Claimed on Form 1040NR: ensures that the amount of withholding credits or refund/credit elect claimed on Forms 1040NR, U.S. Nonresident Alien Tax Return, is verified and whether the taxpayer has properly reported the income reflected on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
⦁ Foreign Earned Income Exclusion Campaign: addresses taxpayers who have claimed benefits but did not meet the requirements.
⦁ Agricultural Chemicals Security Credit Campaign: ensures taxpayer compliance by verifying that only qualified expenses by eligible taxpayers are considered and that taxpayers are properly defining facilities when computing the credit.
⦁ Deferral of Cancellation of Indebtedness Income Campaign: ensures taxpayer compliance of cancellation of indebtedness (COD) income.
⦁ Energy Efficient Commercial Building Property Campaign: ensures taxpayer compliance with the section 179D deduction – The Energy Efficient Commercial Building Deduction.
⦁ Corporate Direct (Section 901) Foreign Tax Credit (“FTC”): focuses on taxpayers who are in an excess limitation position.
⦁ Section 956 Avoidance: focuses on situations where a CFC (Controlled Foreign Corporation) loans funds to a US Parent (USP), but does not include a Section 956 amount in income.
⦁ Economic Development Incentives Campaign: ensures taxpayer compliance for those taxpayers may be eligible to receive a variety of government economic incentives.
⦁ Individual Foreign Tax Credit (Form 1116): addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116.
March 12, 2018, IRS rolls out 5 new campaigns:
⦁ Costs that Facilitate an IRC Section 355 Transaction: ensures taxpayer compliance with the requirement to capitalize, not deduct, facilitative costs.
⦁ SECA Tax: looks at a partner’s distributive share that is subject to self-employment tax under the Self-Employment Contributions Act (SECA).
⦁ Partnership Stop Filer: evaluates how partners treat income, losses, and other items passed through from their partnership and how some stop filing tax returns.
⦁ Sale of Partnership Interest: addresses taxpayers who do not report the sale or do not report the gain or loss of a sale of a partnership correctly.
⦁ Partial Disposition Election for Buildings: ensures that taxpayers accurately recognize the gain or loss on the partial disposition of a building, including its structural components.
May 21, 2018, IRS rolls out an additional 6 new campaigns bringing the total to 35
⦁ Interest Capitalization for Self-Constructed Assets: ensures taxpayer compliance by verifying that interest is properly capitalized for designated property and the computation to capitalize that interest is accurate.
⦁ F3520/3520-A Non-Compliance and Campus Assessed Penalties: seeks to improve compliance with the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts.
⦁ Forms 1042/1042-S Compliance: addresses Withholding Agents who do not meet all their compliance duties.
⦁ Nonresident Alien Tax Treaty Exemptions: increases compliance in nonresident alien (NRA) individual tax treaty exemption claims related to both effectively connected income and Fixed, Determinable, Annual Periodical income.
⦁ Nonresident Alien Schedule A and Other Deductions: increases compliance in the proper deduction of eligible expenses by nonresident alien (NRA) individuals on Form 1040NR Schedule A.
⦁ NRA Tax Credits: increases compliance in nonresident alien individual (NRA) tax credits.
Don’t be a victim of your own making
The launch of all the IRS campaigns demonstrates how IRS wants to improve the “selection of returns for audit”. If you are a Taxpayer out of compliance in any of the IRS compliance campaigns categories, you are under an IRS increased audit risk. Consult your specialized tax advisor to avoid potential penalties and be prepared.