More IRS “Campaigns?! IRS Announces Six More Examination Campaigns
On July 19, 2019, the Internal Revenue Service (IRS) Large Business & International (LB&I) division announced the approval of six new campaigns. As in the past, the IRS stated that “LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” This brings the total number of campaigns to 59! LB&I’s campaign announcements and approved campaigns are available on the IRS’s website.
The six new LB&I campaigns are listed below, verbatim by title and description.
S Corporations Built in Gains Tax
C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners.
Post OVDP Compliance
US persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.
US citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.
High Income Non-Filer
US citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or its foreign equivalents. Through an examination treatment stream, this campaign will concentrate on bringing into compliance those taxpayers who have not filed tax returns.
US Territories – Erroneous Refundable Credits
Some bona fide residents of US territories are erroneously claiming refundable tax credits on Form 1040, US Individual Income Tax Return. This campaign will address noncompliance through a variety of treatment streams including outreach and traditional examinations.
Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009
This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009. In general, Internal Revenue Code (IRC) Section 457A requires that any compensation deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. The campaign objective is to verify taxpayer compliance with the requirements of IRC Section 457A through issue-based examinations.
Practice Point: The idea behind the campaigns was to narrow the IRS’s examination focus and utilize campaigns to better control limited resources. But as the number of campaigns increase (59 and counting), query whether the IRS’s aspirations are being swallowed up by the complexity of tax administration. So what does this mean for taxpayers? As we have previously noted, taxpayers need to be aware of the campaigns and whether they have any issues that are the subject of a campaign. If taxpayers have any campaign issues, preparation is the key to a successful and expeditious result. Prepare an “audit ready” file on those issues in preparation for when the IRS starts asking questions. As more campaigns are announced, we will continue to provide updates.