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International Tax Lawyer & Attorney | April 2019 IRS Compliance Campaigns

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On April 16, 2019, the IRS Large Business and International division (LB&I) announced the approval of three additional compliance campaigns. Let’s discuss in more detail these April 2019 IRS compliance campaigns.

April 2019 IRS Compliance Campaigns: Background Information

In the mid-2010s, after extensive planning, the IRS decided to move LB&I toward issue-based examinations and a compliance campaign process. The idea was to let LB&I itself decide which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this was the most efficient approach that assured the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

The first thirteen campaigns were announced by LB&I on January 13, 2017. Then, the IRS added eleven campaigns on November 3, 2017, five campaigns on March 13, 2018, six campaigns on May 21, 2018, five campaigns on July 2, 2018, five campaigns on September 10, 2018 and five campaigns on October 30, 2018. With the additional three April 2019 IRS compliance campaigns, there are fifty-three total IRS compliance campaigns outstanding as of the time of this writing.

The IRS has created each campaign after careful strategic planning, re-deployment of resources, creation of new training and tools as well as careful taxpayer population selection through metrics and feedback. The IRS has also built a supporting infrastructure inside LB&I for each specific campaign.

Three New April 2019 IRS Compliance Campaigns

Here are the new three new campaigns: Captive Services Provider Campaign, Offshore Private Banking Campaign and Loose-Filed Forms 5471. Each of these five campaigns was identified through LB&I data analysis and suggestions from IRS employees.

April 2019 IRS Compliance Campaigns: Captive Services Provider Campaign

The section 482 regulations and the OECD Transfer Pricing Guidelines provide rules for determining arm’s length pricing for transactions between controlled entities, including transactions in which a foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group. The arm’s length price is determined by taking into consideration data available on companies performing functions, employing assets, and assuming risks that are comparable to those of the captive subsidiary.

Excessive pricing for these services would inappropriately shift taxable income to these foreign entities and erode the U.S. tax base. The goal of this campaign is to ensure that U.S. multinational companies are paying their captive service providers no more than arm’s length prices. The treatment streams for this campaign are issue-based examinations and soft letters.

April 2019 IRS Compliance Campaigns: Offshore Private Banking Campaign

US tax residents are subject to tax on worldwide income from all sources, including income generated outside of the United States. It is not illegal or improper for US taxpayers to own offshore structures, accounts or assets, but they must comply with income tax and information reporting requirements associated with these foreign activities.

Through FATCA, bilateral information exchange treaties, the Swiss Bank Program, offshore voluntary disclosures and audits, the IRS has accumulated a great pile of records that identify taxpayers with transactions and/or accounts at offshore private banks. This campaign addresses tax noncompliance and the information reporting associated with these offshore accounts. The IRS will initially address tax noncompliance through the examination and soft letter treatment streams. Additional treatment streams may be developed based on feedback received throughout the campaign.

April 2019 IRS Compliance Campaigns: Loose-Filed Forms 5471

Form 5471, Information Return of US Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions. Some taxpayers are incorrectly filing Forms 5471 by sending the form to the IRS without attaching it to a tax return.

If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.

Contact Sherayzen Law Office for Professional Tax Help

If you have been contacted by the IRS as part of any of its campaigns, you should contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their US tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Indians working on H1 Visa Need to Pay US Taxes on Indian Income

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US taxes on Indian income is one of the most important topics relevant to the everyday life of Indian-Americans and Indians who reside and work in the United States. In this article, I will focus on the issue of US taxes on Indian Income earned by H1 (mostly H1B) visa holders.

US Taxes on Indian Income and US Tax Residency

Whether an Indian working in the United States needs to pay US taxes on Indian income primarily depends on whether he is a US tax resident. There are three categories of US tax residents – US citizens, US Permanent Residents (i.e. green-card holders), and the individuals who satisfied the Substantial Presence Test.

Any person who is considered to be a US tax resident is required to report his worldwide income on his US tax return and pay US taxes on this income. Hence, if an Indian working in the United States on H1 visa has Indian-source income and he satisfied the Substantial Presence Test, he would be required to pay US taxes on his Indian income, not just income earned in the United States.

US Taxes on Indian Income: the Substantial Presence Test

The Substantial Presence Test is very important in US tax law because it affects millions of foreigners who reside in or visit the United States. The Substantial Presence Test basically states that any individual who is physically present in the United States for 183 days or more within the most recent three-year period is considered to be a US tax resident.

The 183 days are calculated as follows: all days spent in the current year + one-third of the days spent in the year immediately prior to the current year + one-sixth of the days spent in the year right before the prior year (in other words, the second year before the current year) “Current year” here means the year for which you are trying to figure out whether you were a tax resident.

Failure to Pay US Taxes on Indian Income May Result in IRS Penalties and Endangerment of Your Immigration Status

Any Indian who is a US tax resident and fails to pay US taxes on Indian income runs a great risk of the imposition of IRS penalties. If the failure to pay US taxes on Indian income is combined with the failure to file information returns, such as FBARs, then his legal situation in the United States becomes extremely precarious.

Not only are the IRS penalties extremely high (such a person may owe to the IRS more than the balance on your unreported accounts), including criminal penalties with potential jail time, but his immigration status may be endangered as a result of his US tax noncompliance.

Contact Sherayzen Law Office for Professional Help With Your Undisclosed Indian Income and Indian Foreign Accounts

Given these extreme risks, an Indian working in the United States on H1 visa should contact Sherayzen Law Office for professional legal and tax help as soon as possible.

We have helped numerous clients from India to reduce and even, in some cases, completely eliminate their IRS penalties and bring their US tax affairs into full compliance with US tax laws, thereby preserving their immigration status.

We can help you! Contact Us Today to Schedule Your Confidential Consultation!