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IRS Launches 13 Audit Campaigns Targeting Businesses



Ephraim Moss

Recently, the IRS announced that it will focus its audit efforts this year on 13 particular compliance issues, which touch on large business and international activities. This issue-focused effort contrasts with the more broad-based approach that the IRS has previously taken with respect to auditing taxpayers.

The change in approach has apparently been caused by the IRS’s increasingly limited resources. A smaller budget and enforcement staff (it has lost 30% of its staff since 2010) have weakened the IRS’s audit capabilities and caused it to revise its audit strategy.

The 13 Audit Campaigns

The campaigns chosen by the IRS are as follows:

  • OVDP Declines-Withdrawals Campaign
  • Form 1120-F Non-Filer Campaign
  • Related Party Transactions Campaign
  • Repatriation Campaign
  • Inbound Distributor Campaign
  • IRC 48C Energy Credit Campaign
  • Domestic Production Activities Deduction, Multi-Channel Video
  • Program Distributors (MVPD’s) and TV Broadcasters
  • Micro-Captive Insurance Campaign
  • Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign
  • Basket Transactions Campaign
  • Land Developers – Completed Contract Method (CCM) Campaign
  • TEFRA Linkage Plan Strategy Campaign
  • S Corporation Losses Claimed in Excess of Basis Campaign

These campaigns represent the first wave of LB&I’s issue-based compliance work. More campaigns will continue to be identified, approved and launched in the coming months.

An explanation of each campaign is available on this IRS page.

Campaigns Of Particular Interest

While there are a number of campaigns on the list that may be relevant to expats, depending on one’s activities abroad, there are two campaigns which are of particular interest.

The first relates to the IRS amnesty programs, which we have blogged about on a number of occasions. Under the OVDP (Offshore Voluntary Disclosure Program) Declines-Withdrawals Campaign, the IRS will review OVDP applicants who were either denied or withdrew from the program of their own volition. The IRS states that it will address continued noncompliance by such individuals through a variety of means including examination.

The second relates to foreign companies doing business in the United States. The IRS has gathered data which suggests that many foreign companies are not meeting their filing obligations. Under the Form 1120-F Non-Filer Campaign, the IRS will attempt to identify non-compliant foreign companies and encourage such companies to file the Form 1120-F as required. According to the IRS, the “treatment stream 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 reason for the softer approach, according to the IRS, is to increase voluntary compliance by foreign corporations with U.S. tax obligations.

Our Observations

Based on the above, it seems that a window of opportunity has opened for taxpayers, especially those with interests or activities abroad, to catch up with the IRS. Perhaps because of its limited resources, the IRS seems to be planning a “soft letter outreach” approach this year that favors taxpayer disclosure over aggressive auditing and penalization. For delinquent expat taxpayers, now more than ever is a good time to participate in an IRS tax amnesty program, including the OVDP and Streamlined programs.

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Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.

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