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IRS Agrees Initiatives To Tackle Big Business Tax Issues

by Mike Godfrey, Tax-News.com, Washington

09 November 2017


The Internal Revenue Service Large Business and International division has announced that it will launch 11 additional compliance campaigns.

These campaigns are in addition to those announced January 31, 2017.

The campaigns are the culmination of an extensive effort to redefine large business compliance work and build a supportive infrastructure inside LB&I, the IRS said. They were identified by data analysis by the division and from suggestions from IRS compliance employees.

The Internal Revenue Service has released a statement explaining the 11 campaigns selected for this rollout:

A Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign.

This campaign is designed to verify withholding at source for 1120-Fs claiming refunds. To make a claim for refund or credit to estimated tax with respect to any US source income withheld under chapters 3 or 4, a foreign entity must file a Form 1120-F. Before a claim for credit (refund or credit elect) is paid, the IRS must verify that withholding agents have filed the required returns (Forms 1042, 1042-S, 8804, 8805, 8288, and 8288-A). This campaign focuses upon verification of the withholding credits before the claim for refund or credit is allowed. The campaign will address non-compliance through a variety of treatment streams including, but not limited to, examinations.

Swiss Bank Program Campaign

In 2013, the US Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities. Banks that are participating in this program provide information on the US persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations.

Foreign Earned Income Exclusion Campaign

Individuals who meet certain requirements may qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction. This campaign will address taxpayers who have claimed these benefits but do not meet the requirements. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including examination.

Verification of Form 1042-S Credit Claimed on Form 1040NR

This campaign is intended to ensure the amount of withholding credits or refund/credit elect claimed on Forms 1040NR, US Nonresident Alien Tax Return, is verified and whether the taxpayer has properly reported the income reflected on Form 1042-S, Foreign Person's US Source Income Subject to Withholding. Before a refund is issued or credit allowed, the Internal Revenue Service verifies the withholding credits reported on the Form 1042-S. The campaign will address non-compliance through a variety of treatment streams including, but not limited to, examinations.

Agricultural Chemicals Security Credit Campaign

The Agricultural chemicals security credit is claimed under Internal Revenue Code Section 45O and allows a 30 percent credit to any eligible agricultural business that paid or incurred security costs to safeguard agricultural chemicals. The credit is nonrefundable and is limited to USD2m annually on a controlled group basis with a 20-year carryforward provision. In addition, there is a facility limitation as outlined in Section 45O(b). The goal of this campaign is to ensure taxpayer compliance by verifying that only qualified expenses by eligible taxpayers are considered and that taxpayers are properly defining facilities when computing the credit. The treatment stream for this campaign is issue-based examinations.

Deferral of Cancellation of Indebtedness Income Campaign

During 2009 and 2010, taxpayers who incurred cancellation of indebtedness (COD) income from the reacquisition of debt instruments at an issue price less than the adjusted issue price of the original instrument may have elected to defer the COD income. Taxpayers must report the COD income ratably over five years beginning in 2014 and running through 2018. Further, when a taxpayer defers the COD income, any related original issue discount (OID) deductions on the new debt instrument, resulting from debt-for-debt exchanges that triggered the COD must also be deferred ratably and in the same manner as the deferred COD income. The goal of this campaign is to ensure taxpayer compliance by verifying that taxpayers who properly deferred COD income in 2009/2010 properly report it in subsequent years beginning in 2014, unless an accelerating event requires earlier recognition under IRC §108(i); and/or properly defer reporting OID deductions during the deferral period under IRC Section108(i)(2). The treatment stream for this campaign is issue-based examinations. The use of soft letters is under consideration, the IRS said.

Energy Efficient Commercial Building Property Campaign

The Energy Efficient Commercial Building Deduction (Section 179D) allows taxpayers who own or lease a commercial building to deduct the cost or portion of the cost of installing energy efficient commercial building property (EECBP). If the equipment is installed in a government-owned building, the deduction is allocated to the person(s) primarily responsible for designing the EECBP. The goal of this campaign is to ensure taxpayer compliance with the section 179D deduction. The treatment stream for this campaign is issue-based examinations.

Corporate Direct (Section 901) Foreign Tax Credit (FTC)

Domestic corporate taxpayers may elect to take a credit for foreign taxes paid or accrued in lieu of a deduction. The goal of the Corporate Direct FTC campaign is to improve return/issue selection (through filters) and resource utilization for corporate returns that claim a direct FTC under IRC section 901. This campaign will focus on taxpayers who are in an excess limitation position. The treatment stream for the campaign will be issue-based examinations. This is the first of several FTC campaigns. Future FTC campaigns may address indirect credits and IRC 904(a) FTC limitation issues.

Section 956 Avoidance

If a Controlled Foreign Corporation (CFC) makes a loan to its US parent, Section 956 generally requires an income inclusion equal to the amount of the loan. This campaign focuses on situations where a CFC loans funds to a US Parent (USP), but nevertheless does not include a Section 956 amount in income. The goal of this campaign is to determine to what extent taxpayers are utilizing cash pooling arrangements and other strategies to improperly avoid the tax consequences of Section 956. The treatment stream for this campaign is issue based examinations.

Economic Development Incentives Campaign

Taxpayers may be eligible to receive a variety of government economic incentives. These incentives include refundable credits (refunds in excess of tax liability), tax credits against other business taxes (i.e. payroll tax), nonrefundable credits (refunds limited to tax liability), transfer of property including land, and grants including cash payments. Taxpayers may improperly treat government incentives as non-shareholder capital contributions, exclude them from gross income and claim a tax deduction without offsetting it by the tax credit received. The goal of this campaign is to ensure taxpayer compliance. The treatment stream for this campaign is issue based examinations.

Individual Foreign Tax Credit (Form 1116)

Individuals file Form 1116 to claim a credit that reduces their US income tax liability for the amount of foreign taxes paid on foreign source income. This campaign addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116. Due to the complexity of computing the Foreign Tax Credit and challenges associated with third-party reporting information, some taxpayers face the risk of claiming an incorrect Foreign Tax Credit amount. The IRS will address noncompliance through a variety of treatment streams including examinations.

The IRS said these campaigns represent the second wave of LB&I's issue-based compliance work. More campaigns will continue to be identified, approved and launched in the coming months, it added.

TAGS: compliance | Energy | tax | business | energy | employees | payroll | tax credits | United States | Tax | BEPS

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