In November 2017, the IRS Large Business & International Division (“LB&I”) announced the expansion of its compliance campaigns, selecting eleven additional areas on which to focus. IRS LB&I now has 24 total campaigns ongoing, including the 13 campaigns originally announced in January 2017. The new slate of campaigns reflect the IRS’s continued focus on international enforcement. Some particularly notable campaigns include:
- Swiss Bank Program Campaign. The IRS started the Swiss Bank Program in 2013 to allow financial institutions to disclose information on U.S. account holders in order to reduce, or avoid, their criminal liability for their role in facilitating the evasion of U.S. tax. Since the beginning of the program, approximately 80 banks have participated, and the IRS has amassed a trove of information on U.S. taxpayers. This campaign will seek to leverage the information received to identify taxpayers who have not been complying with obligations to report foreign accounts.
- Verification of Form 1042-S Credit Claimed on Form 1040NR Campaign. This campaign will focus on verifying withholding credits or refunds claimed by U.S. nonresident taxpayers, to be sure that foreign income is being properly reported.
- Section 956 Avoidance Campaign. The IRS LB&I wants to be sure that U.S. parent corporations are properly reporting as income loans from controlled foreign corporations. This campaign will also focus on taxpayers who may be pooling cash to avoid their 956 obligations.
- Deferral of Cancellation of Indebtedness Income Campaign. Taxpayers who incurred COD income in 2009 and 2010 were allowed to report that income over five years, from 2014 through 2018. With the COD deferrals, original issue discount (“OID”) deductions were also meant to have been deferred. Now that the end of the five-year window is approaching, the IRS LB&ID will be assuring itself that COD income and OID deductions are being properly made.
These campaigns, on top of the 13 campaigns announced this time last year, evidence some of the IRS’s biggest priorities headed in 2018. Like the prior campaigns, these new campaigns will use a variety of tools, including issue-based examinations and soft letters. In addition to the four expansion areas examined above, the seven other campaigns focus on: (1) Form 1120-F Chapter 3 and Chapter 4 withholding, (2) foreign earned income or housing exclusion (Section 911), (3) agricultural chemicals security credits (Section 45O), (4) energy efficient commercial building deductions (Section 179D), (5) corporate direct foreign tax credits (Section 901), (6) economic development incentives, and (7) individual foreign tax credits (Form 1116).