Since shifting its audit strategy to issue-based examinations in January 2017, the IRS Large Business and International (LB&I) division has announced 59 separate compliance campaigns. This strategy is intended to focus the selection of tax returns for examination on compliance issues that present higher levels of compliance risk.
Recently, the LB&I division announced the addition of six new additional compliance campaigns. The additional targeted issues announced by the IRS are:
Subchapter S Corporation Built-In Gain (BIG) Tax: An S Corporation that previously was taxed as a Subchapter C corporation is subject to the BIG tax when it has a net unrealized built-in gain on its assets on the date of conversion to Subchapter S status and then sells those assets within five years of the conversion. The campaign is intended to increase compliance with the BIG tax provisions and will include issue-based examinations, correspondence to encourage self-correction and voluntary compliance, and contact with tax practitioners.
Offshore Voluntary Disclosure Program (OVDP) Compliance: The IRS has offered multiple programs designed to allow U.S. persons living overseas to comply with applicable income and asset reporting requirements. The OVDPs allowed those taxpayers to avoid criminal charges and pay reduced civil penalties by voluntarily disclosing previously unreported foreign assets to the IRS. The new campaign is designed to ensure participants in the prior OVDPs are in compliance with their obligations under those programs. The OVDP compliance campaign will be administered through examinations and correspondence.
Expatriation: A U.S. citizen or a long-term U.S. resident is required to pay a U.S. "exit tax" upon termination of his or her U.S. citizenship or residency status. The expatriation campaign will address compliance with these provisions through correspondence and examinations.
High-Income Nonfilers: U.S. citizens and nonresident aliens are subject to U.S. income tax on their worldwide income. This campaign will focus on bringing taxpayers who have not filed all required tax returns reporting their worldwide income into compliance with their filing obligations.
U.S. Territory Filers Erroneous Credits: The IRS has become aware that residents of U.S. territories may be erroneously claiming refundable tax credits on Form 1040. This campaign will focus on identifying and correcting these situations through correspondence and examinations.
Deferred Compensation for Services Performed Before January 1, 2009: Compensation deferred under a nonqualified deferred compensation plan is includible in the gross income of a plan participant when there is no substantial risk of forfeiture of that compensation. This campaign is designed to ensure compliance with the deferred compensation rules through examinations.
Given the increased IRS scrutiny of these issues, we recommend that you contact your Whitley Penn tax advisor if you have any concerns regarding these new campaigns.