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IRS Rolls Out International Tax Compliance Campaigns


2/8/2017
 
Summary
 
On January 21, 2017,  the IRS Large Business and International Division (”LBI”), which serves corporations, subchapter S corporations, and partnerships with assets greater than USD 10 million, initially identified 13 issue-based compliance campaigns, ostensibly to redefine large business compliance work.  The stated goal of these campaigns is to manage perceived risk by improving return selection, identifying issues leading to non-compliance, and maximizing use of available limited resources.
 
Background
 
The selected campaigns correspond to various potential domestic and international tax issues, chosen based on LBI’s data analysis, suggestions of IRS compliance employees, and feedback from the tax community.  As part of this effort, LBI’s leaders will continue discussions with the tax community in order to meet the needs of both tax administration and taxpayers.
 
Among the 13 campaigns, there are five that directly impact taxpayers with international operations:
 
1. Offshore Voluntary Disclosure Program (“OVDP”) Declines-Withdrawals Campaign
OVDP and similar programs allow US taxpayers with undisclosed income from offshore accounts and/or under-reported foreign legal entities to become current with their US tax compliance.  Eligible taxpayers are encouraged to enter into one of the available disclosure programs to resolve earlier shortcomings in their US-international tax compliance.  This particular campaign represents a formal effort to deal with OVDP applicants who once applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program at their own will.
 
2. Repatriation Campaign
This campaign addresses the issue of tax-free repatriation of funds into the US by mid-market taxpayers, as well as perceived nondisclosure of taxable transactions on the taxpayers’ tax returns.  The stated goal of the repatriation campaign is to increase taxpayers’ compliance by improving issue selection filters for conducting examinations on identified high-risk repatriation issues.
 
3. Form 1120-F Non-Filer Campaign
This campaign is being introduced to identify and contact foreign entities that may be doing business in the US and are not in compliance with their Form 1120-F (“U.S. Income Tax Return of a Foreign Corporation”) filing obligations.  LBI will use various external data sources to identify foreign companies with US business nexus and conduct examinations to determine the correct tax liability.  LBI has indicated that this campaign will involve soft letter outreach.  If contacted companies do not take the action LBI considers appropriate, then LBI will conduct examinations to determine the correct tax liability.
 
4. Inbound Distributor Campaign
US distributors of goods sourced from foreign-related parties have incurred losses or small profits on US returns, which LBI believes are not commensurate with the functions performed and risks assumed.  In many cases, LBI is of the view that the US taxpayer would be entitled to higher returns in arms-length transactions.  LBI has developed comprehensive training programs for their agents and will conduct issue-based examinations.
 
5. Related Party Transactions Campaign
The campaign will focus on transactions among commonly controlled entities that allow taxpayers to transfer funds from a corporation to its related pass-through entities or shareholders.  LBI is allocating resources to this issue to determine the level of compliance in related-party transactions of taxpayers in the mid-market segment.  This campaign is anticipated to involve issue-based examinations.
 
What does CohnReznick think?
 
Taxpayers who believe that they may be targeted by any of the LBI’s programs should be prepared for issue-based examinations. They should contact their tax advisors in order to determine whether they are in compliance with the US IRS requirements.
 
Contact
 
For more information, please contact James Wall, Principal, at james.wall@cohnreznick.com or 646-254-7460; or Christina Lee, Partner, at christina.lee@cohnreznick.com or 646-254-7450; or Jan Carnevale, Director, at jan.carnevale@cohnreznick.com or 973-364-6692; or Gary Lubowiecki, Senior Manager, at gary.lubowiecki@cohnreznick.com or 973-364-7823; or Jonathan Babu, Senior Manager, at jonathan.babu@cohnreznick.com or 301-664-8111; or David Macall, Senior Manager, at david.macall@cohnreznick.com or 646-601-7774.
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
 
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