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October 2018 IRS Compliance Campaigns | International Tax Lawyer & Attorney News

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On October 30, 2018, the IRS Large Business and International division (LB&I) has announced five additional compliance campaigns. Let’s discuss in more detail these October 2018 IRS compliance campaigns.

October 2018 IRS Compliance Campaigns: Background Information

By the middle of the 2010s, the IRS realized that the then-existing structure of the LB&I was not the best format to address modern noncompliance issues; it could not even accurately identify potential noncompliant taxpayers. Also, the IRS believed that LB&I was not applying the IRS funds in an efficient manner.

Hence, after extensive planning, the IRS decided to move LB&I toward issue-based examinations and a compliance campaign process. Under the new format, LB&I itself decided 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 approach made the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

Each campaign was preceded by 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.

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 and five campaigns on September 10, 2018. In other words, as of September 11, 2018, there were a total of forty-five campaigns. The additional five October 2018 IRS compliance campaigns bring the total number of campaigns to fifty.

Five New October 2018 IRS Compliance Campaigns

Here are the new October 2018 IRS Compliance campaigns that should be added to the already-existing forty-five campaigns: Individual Foreign Tax Credit Phase II, Offshore Service Providers, FATCA Filing Accuracy, 1120-F Delinquent Returns and Work Opportunity Tax Credit. Each of these five campaigns was identified through LB&I data analysis and suggestions from IRS employees.

October 2018 IRS Compliance Campaigns: Individual Foreign Tax Credit Phase II

IRC Section 901 alleviates double-taxation through foreign tax credit for income taxes paid by US taxpayers on their foreign-source income. In order to claim the credit, one must meet certain eligibility requirements. This campaign addresses taxpayers who have claimed the credit, but did not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.

October 2018 IRS Compliance Campaigns: Offshore Service Providers

The goal of this campaign is purely punitive – to target US taxpayers who engaged Offshore Service Providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.

October 2018 IRS Compliance Campaigns: FATCA Filing Accuracy

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the HIRE Act. The overall purpose is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions. Under FATCA, Foreign Financial Institutions and certain Non-Financial Foreign Entities are generally required to report the foreign assets held by US account holders; the same applies to substantial (beneficial) US owners of these assets. This campaign addresses those entities that have FATCA reporting obligations but do not meet all their compliance responsibilities. The Service will address noncompliance through a variety of treatment streams, including termination of the FATCA status.

October 2018 IRS Compliance Campaigns: 1120-F Delinquent Returns

The campaign addresses delinquent (i.e. filed late) Forms 1120-F. Form 1120-F is a US income tax return of a foreign corporation. It must be accurate, true and filed timely in order for a foreign corporation to claim deductions and credits against effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than eighteen months after the due date of the current year’s return.

The IRS may waive the filing deadline where, based on its facts and circumstances, the foreign corporation establishes to the satisfaction of the IRS that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F. The reasonable cause standard is described in Treas. Reg. Section 1.882-4(a)(3)(ii). LB&I Industry Guidance 04-0118-007 (dated February 1, 2018) established procedures to ensure waiver requests are applied in a fair, consistent and timely manner under the regulations.

The objective of the 1120-F Delinquent Returns campaign is to encourage foreign entities to timely file Form 1120-F returns and address the compliance risks for delinquent 1120-F returns. The IRS hopes to accomplish it by field examinations of compliance-risk delinquent returns and external education outreach programs.

October 2018 IRS Compliance Campaigns: Work Opportunity Tax Credit

This campaign addresses the consequences of the Work Opportunity Tax Credit (WOTC) certification delays and the burden of amended return filings. Due to delays associated with the WOTC certification process, taxpayers are often faced with the burdensome requirement of amending multiple years of federal and state returns to claim the WOTC in the year qualified WOTC wages were paid. This requirement, coupled with any resulting examinations of this issue, is an inefficient use of both taxpayer and IRS resources.

Pursuant to Rev. Proc. 2016-19, the IRS has agreed to accept the “WOTC year of credit eligibility” issue into the Industry Issue Resolution (IIR) program. The IIR is intended to provide remedies to reduce taxpayer burden, promote consistency, and decrease examination time to most effectively use IRS resources. The campaign’s objective is to collaborate with industry stakeholders, Chief Counsel, and Treasury to develop an LB&I directive for taxpayers experiencing late certifications and to promote consistency in the examinations of WOTC claims.

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!

Foreign Tax Credit for Individuals: Who Can Take It?

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If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take these qualified foreign taxes as a tax credit to offset (in part or in full) your U.S. tax liability. An important questions arises for foreign tax credit attorneys: who is eligible to claim a foreign tax credit on his individual U.S. tax returns.

The first and most obvious category consists of U.S. citizens. If you are a U.S. citizen, you would usually be entitled to take a credit for foreign taxes that you paid or accrued. Part of the reason for this eligibility is the fact that, as a U.S. citizen, you are taxed by the U.S. government on your worldwide income irrespective of where you live.

Resident aliens constitute the second eligible category to claim foreign tax credit. Same reasoning applies as to U.S. citizens.

In most cases, nonresident aliens would not be able to take a foreign tax credit. However, there are important exceptions. The two major exceptions are: Puerto Rico residency or ECI (Effectively Connected Income).

The latter exception requires a bit more explanation. If you are a non-resident alien who pays or accrues tax to a foreign country or a U.S. possession on income from foreign sources that is effectively connected (here where the “ECI” term comes into play) with a trade or business in the United States, then you may be able to claim foreign tax credit on your individual U.S. tax return. ECI is a term of art and whether your foreign income is effectively connected with a trade or business in the United States is a complex legal question that should be reviewed by an international tax attorney.

Note that, where a non-resident alien pays foreign taxes on income from U.S. sources only because he is a citizen or resident of that foreign country, then this tax cannot be used in figuring the amount of the foreign tax credit.

Contact Sherayzen Law Office for Professional Help with Your Foreign Tax Credit

Claiming a foreign tax credit can be a very complex tax question and you need the right professionals to help you. Contact Sherayzen Law Office for experienced professional help with your foreign tax credit issues.