Every so often the Internal Revenue Service (IRS) announces a campaign or area of focus in order to “ improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources,” as stated by the IRS announcement of the new campaign. The newest campaign of the Large Business & International division (LB&I) are as follows:
- S Corporation Built-In Gain: This campaign will focus on increasing payment of the built-in gains tax after a C-Corp to S-Corp conversion. There appears to have been an uptick in an underreporting of built-in gains after a conversion from a C-Corp to an S-Corp and the C-Corp assets are sold or otherwise disposed of. A provision of the IRS code is supposed to prevent the beneficial treatment of this type of conversion by taxing that built-in gain.
- Post-Offshore Voluntary Disclosure Program Compliance (OVDP): This campaign will focus on enforcement of the reporting requirements for individuals who were enrolled in the OVDP program but have fallen out of compliance. US Citizens and Residents are subject to income tax on all income notwithstanding where the income is generated or the physical location of the taxpayer. Until March 2018, the IRS had an amnesty program in order to encourage taxpayers, living overseas, to become voluntarily compliant with reporting requirements.
- Expatriation: This campaign will focus on compliance with filing requirements for certain taxpayers attempting to become expatriates. Taxpayers, even those living overseas, are subject to income tax. If a taxpayer had an intent to become an expatriate, certain filing requirements must be met before completing the process.
- High-Income Non-Filers: As the name applies, this campaign will focus on high-income taxpayers who have failed to report all income and/or a failure to file income tax returns. Just because an information return (1099, W-2, etc.) is not provided does not mean that tax is not due on the income received. In the fiscal year 2018, the IRS examined less than 4% of individual tax returns with income above $200,000.
- U.S. Territories – Erroneous Refundable Credits: This campaign will focus on reducing the erroneous claiming of refundable tax credits by bona fide residents of U.S. territories.
- Section 457A Deferred Compensation: This campaign will focus on ensuring the inclusion of income for income that was deferred but is no longer subject to the deferment rules. Non-qualified deferred compensation is subject to inclusion in income tax when it is no longer subject to a substantial risk of forfeiture. This campaign will focus on income that is attributable to services performed before 2009 and may no longer be subject to a substantial risk of forfeiture.
A campaign usually means additional focus and resources are allocated to the areas where the IRS is trying to increase compliance. Therefore, it’s important to understand if these are areas that you may have some risk that you speak with a tax professional to assess risk mitigation or compliance assistance.