The IRS’s Large Business and International division has announced new campaigns that it will be targeting in a new audit strategy. The IRS identified 13 specific issues spanning a broad range of topics including partnerships, insurance, an energy tax credit, tax techniques used by the television broadcast industry, and foreign businesses and taxpayers. These issues were identified through extensive data analysis, suggestions from IRS compliance employees, and feedback from the tax community.
Code Sec. 48C energy credit campaign
This 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 IRS, are claiming the credit. The approach for this campaign will be soft letters (generally, warning letters intended to encourage self-correction and voluntary compliance) and issue-focused examinations.
OVDP declines-withdrawals campaign
The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported offshore income and failure to file foreign information returns. This campaign addresses 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. IRS will address continued noncompliance through a variety of approaches including examination.
Domestic production activities deduction, multi-channel video program distributors (MVPDs) and TV broadcasters.
MVPDs and TV broadcasters often claim that “groups” of channels or programs are a qualified film eligible for the Code Sec. 199 deduction. Taxpayers are asserting that they are the producers of a qualified film when distributing channels and subscriptions packages that often include third-party produced content. LB&I has developed a strategy to identify taxpayers impacted by these issues and will develop training to aid revenue agents in examining them. The approaches for this campaign include the development of an externally published practice unit, potential published guidance, and issue-based exams, when warranted.
Micro-captive insurance campaign
This campaign addresses transactions described as transactions of interest in Notice 2016-66, 2016-47 IRB 745, in which a taxpayer attempts 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
This campaign focuses on transactions between commonly controlled entities that provide taxpayers a means to transfer funds from the corporation to related pass-through entities or shareholders. The approach for this campaign is issue-based examinations.
Deferred variable annuity reserves & life insurance reserves IIR campaign
IRS and Chief Counsel have agreed to accept the deferred variable annuity reserves and life insurance reserves issues into the Industry Issue Resolution (IIR) program to develop guidance to address uncertainties on issues important to the Life Insurance Industry. The campaign’s objective is to collaborate with industry stakeholders, Chief Counsel and Treasury to develop published guidance that provides certainty to taxpayers regarding these related issues. Make sure to check out the Genesage website for more information about the best insurance companies in the UK.
Basket transactions campaign
This campaign addresses structured financial transactions described in Notice 2015-73, 2015-46 IRB 660 and Notice 2015-74, 2015-46 IRB 663, in which a taxpayer attempts to defer and treat ordinary income and short-term capital gain as long-term capital gain. The taxpayer treats the option or other derivative as open until a barrier event occurs, and, therefore, does not recognize or report current period gains. The gains are deferred until the contract terminates, at which time the overall net gain is reported as a long term capital gain. LB&I has developed a training strategy for this campaign. The approaches for this campaign will be issue-based examinations, soft letters to material advisors, and practitioner outreach.
Land developers;completed contract method (CCM) campaign
Large land developers that construct in residential communities may be improperly using the CCM of accounting. A developer, whose average annual gross receipts exceed $10 million may only use the CCM under a home construction contract. In some cases, developers are improperly deferring all gain until the entire development is completed. LB&I will provide training for revenue agents assigned to work this issue. The approach includes development of a practice unit, issuance of soft letters, and follow-up with issue-based examinations when warranted.
TEFRA linkage plan strategy campaign
As partnerships have become larger and more complex, LB&I has regularly revised processes to assess tax on the terminal investors. Recent legal advice provides an opportunity to make significant changes to how IRS approaches this process. This campaign focuses on developing new procedures and technology to work collaboratively with the revenue agent conducting the TEFRA partnership examination (i.e., the uniform partnership audit rules under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA, P.L. 97-248, 9/3/1982)) to identify, link, and assess tax to the terminal investors that pose the most significant compliance risk.
S corporation losses claimed in excess of basis campaign
The law limits S corporation shareholders’ losses and deductions to their basis in the corporation. LB&I has found that shareholders claim losses and deductions to which they are not entitled because they do not have sufficient stock or debt basis to absorb these items. LB&I has developed technical content for this campaign that will aid revenue agents as they examine the issue. The approaches for this campaign will be issue-based examinations, soft letters encouraging voluntary self-correction, conducting stakeholder outreach, and creating a new form for shareholders to assist in properly computing their basis.
LB&I is aware of different repatriation structures being used for purposes of tax-free repatriation of funds into the U.S. in the mid-market population. It has also been determined that many of the taxpayers do not properly report repatriations as taxable events on their filed returns. 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.
Form 1120-F non-filer campaign
Foreign companies doing business in the U.S. are often required to file Form 1120-F (U.S. Income Tax Return of a Foreign Corporation). LB&I has data suggesting that many of these companies are not meeting their filing obligations. In this campaign, LB&I will use various external data sources to identify these foreign companies and encourage them to file their required returns. The approach 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 goal is to increase voluntary compliance by foreign corporations with a U.S. business nexus.
Inbound distributor campaign
U.S. distributors of goods sourced from foreign-related parties have incurred losses or small profits on U.S. returns, which are not commensurate with the functions performed and risks assumed. In many cases, the U.S. taxpayer would be entitled to higher returns in arms-length transactions. LB&I has developed a comprehensive training strategy for this campaign that will aid revenue agents as they examine this Code Sec. 482 issue. The approach for this campaign will be issue-based examinations.