On January 31, 2017, the IRS announced a complete new approach to tax enforcement – Issue-Focused IRS Compliance Campaigns. A total of thirteen IRS compliance campaigns were announced; all of them will be administered by the LB&I (Large Business and International) division of the IRS. Let’s explore in more detail this highly important IRS announcement.
Background Information: IRS Compliance Campaigns is the Second Phase of the LB&I Restructuring
The announcement of the IRS Compliance Campaigns does not come as a surprise. The IRS has been talking about the LB&I division restructuring for a long while and the first details of the new campaigns already appeared as early as September of 2015.
In fact, the IRS Compliance Campaigns represent the second phase of this restructuring. Already in the fall of 2015, the LB&I completed the first phase – the administrative re-organization of the LB&I into nine units, including four geographic practice areas and five issue-based practice areas.
The first phase of the LB&I reorganization focused on the administrative structure of the Division. The IRS Compliance Campaigns are meant to reorganize the Division’s tax enforcement process in a way that fits best the new administrative structure.
IRS Compliance Campaigns are Focused on Specific Tax Issues
On January 31, 2017, during a conference call announcing the new IRS Compliance Campaigns, the IRS stated that each campaign is meant to provide “a holistic response to an item of either known or potential compliance risks.” In other words, each Campaign is focused on a specific tax issue which carries a heightened noncompliance risk.
This focus on specific issues fits perfectly with the new organizational structure of the LB&I which we already discussed above. Again, this is all part of a large IRS plan to devote its scarce resources towards the areas which have significant noncompliance risk and, hence, require a more intense level of IRS scrutiny.
Issue-Focused IRS Compliance Campaigns: What Areas Will the Campaigns Affect?
As of March 21, 2017, the IRS identified thirteen such high-risk areas. A separate campaign was assigned to each of these areas. The campaigns can be grouped according to the IRS LB&I Practice Areas.
1. Cross Border Activities Practice Area
The following campaigns are included within the Cross Border Activities Practice Area of the LB&I Division: Form 1120-F Non-Filer Campaign and Repatriation Campaign.
2. Enterprise Activity Practice Area
The Enterprise Activity Practice Area of the LB&I Division contains more campaigns than any other area by a large margin. Seven different campaigns are launched within this Practice Area: IRC 48C Energy Credit; Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters; Micro-Captive Insurance Campaign; Related Party Transactions; Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign; Basket Transactions Campaign; and Land Developers – Completed Contract Method (CCM) Campaign.
3. Pass-Through Entities Area
Two huge campaigns are launched in the Pass-Through Entities Area of the LB&I Division: TEFRA Linkage Plan Strategy Campaign and S Corporation Losses Claimed in Excess of Basis Campaign.
4. Treaty and Transfer Pricing Operations Practice Area
One campaign is launched within the Treaty and Transfer Pricing Operations Practice Area: the Inbound Distributor Campaign.
5. Withholding and International Individual Compliance Practice Area
Only one, but highly important campaign was launched within the Withholding and International Individual Compliance Practice Area – OVDP Declines-Withdrawals Campaign.
The taxpayers should remember that they may be subject to multiple IRS Compliance Campaigns at the same time.
IRS Compliance Campaigns: Treatment Streams
The goal of the campaigns is to promote tax compliance – even more fundamentally, to change the taxpayer behavior in general, replacing noncompliance with compliance.
In order to achieve this goal, the IRS may utilize a variety of “treatment streams” as part of a campaign. The first and most fundamental treatment stream is the traditional audit, which will remain the ultimate weapon in all IRS Compliance Campaigns.
Second, the IRS stated that it will also include “soft letters” to taxpayers. The idea behind the soft letters is to draw a taxpayer’s attention to a particular item or issue on the taxpayer’s return, explain the IRS position and give the taxpayer an opportunity to amend his return himself (i.e. without resorting to an audit). If the taxpayer does not do so after he receives the IRS letter, an audit will most likely follow.
Additionally, the IRS stated that it will pursue four additional strategies: guidance, new forms and instructions, published practice units, and practitioner and stakeholder outreach.
More IRS Compliance Campaigns Will Be Launched in the Future
The IRS has affirmatively stated that the number of the IRS Compliance Campaigns will increase in the future. At this point, it is not yet known what particular areas the new Campaigns will affect.
Contact Sherayzen Law Office for Professional Help If You Are Affected by One or More of the IRS Compliance Campaigns
If you are affected by any of the IRS campaigns or you have received a soft letter from the IRS, contact Sherayzen Law Office for professional help. Our team of tax professionals, headed by Attorney Eugene Sherayzen, will thoroughly analyze your case, create a plan to move forward to resolve the situation, implement the plan and defend your position against the IRS.