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The IRS has announced that new “compliance campaigns” related to offshore matters. See IRS web page titled “IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns,” here. The IRS describes its compliance campaigns as:
LB&I is moving toward issue-based examinations and a compliance campaign process in which the organization decides which compliance issues that present risk require a response in the form of one or multiple treatment streams to achieve compliance objectives. This approach makes use of IRS knowledge and deploys the right resources to address those issues.
We want to highlight the following 5 areas from this announcement:
1. Offshore Service Providers
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
The focus of this campaign is to address U.S. 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, generally, for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.
2. FATCA filing accuracy.
FATCA Filing Accuracy
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
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. Foreign Financial Institutions and certain Non-Financial Foreign Entities are generally required to report the foreign assets held by their U.S. account holders and substantial U.S. owners under the FATCA. 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.
3. 1120-F Delinquent Returns Campaign
Practice Area: Cross Border Activities
Lead Executive: Orrin Byrd, director of Field Operations (East)
The objective of the Delinquent Returns Campaign is to encourage foreign entities to timely file Form 1120-F returns and address the compliance risk for delinquent 1120-F returns. This is accomplished by field examinations of compliance risk delinquent returns and external education outreach programs. The campaign addresses delinquent-filed returns, Form 1120-F U.S. Income Tax Return of a Foreign Corporation.
Form 1120-F must be filed on a timely basis and in a true and accurate manner for a foreign corporation to claim deductions and credits against its effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year’s return. The filing deadline may be waived, in situations based on the facts and circumstances, where the foreign corporation establishes to the satisfaction of the commissioner that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F per Treas. Reg. Section 1.882-4(a)(3)(ii). LB&I Industry Guidance 04-0118-007 dated 2/1/2018 established procedures to ensure waiver requests are applied in a fair, consistent and timely manner under the regulations.
Protective return. If a foreign
corporation conducts limited activities in
the United States in a tax year that the
foreign corporation determines does not
give rise to gross income which is
effectively connected with the conduct of a
trade or business within the United States, the foreign corporation should follow the
instructions for filing a protective return to
safeguard its right to receive the benefit of
the deductions and credits attributable to
that gross income under Regulations
section 1.882-4(a)(3)(vi) in the event that it
is subsequently determined that the
original determination was incorrect. A
foreign corporation should also file a
protective return if it determines initially
that it has no U.S. tax liability under the
provisions of an applicable income tax
treaty (for example, because its income is
not attributable to a permanent
establishment in the United States). A foreign
corporation that does not file a return will
lose the right to take deductions and
credits against effectively connected
income (ECI).
4. OVDP Declines-Withdrawals Campaign, here.
The Practice Area is Withholding & International Individual Compliance
Lead Executive: Pamela Drenthe
The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported offshore income and failure to file foreign information returns. This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. Taxpayers, who have yet to resolve their non-compliance and who meet the eligibility criteria, are encouraged to consider entering one of the offshore programs currently available. The IRS will address continued noncompliance through a variety of treatment streams including examination and letters.
5. Virtual Currency, here.
Practice Area: Withholding & International Individual Compliance
Executive Lead: John Cardone, director, Withholding & International Individual Compliance
U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency.
