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IRS Moves Towards Issue-based Exams to Combat Tax Evasion

June 19, 2017

The IRS is cracking down on tax noncompliance through a new system they’re calling compliance “campaigns”. Learn about the system and the issues it will attempt to tackle.

Attention Taxpayers: The Internal Revenue Service (IRS) recently launched its first wave of compliance “campaigns” which are poised to crack down on tax evasion schemes. The campaigns are issue-based compliance processes centered on focused examinations, staffed with IRS experts on the targeted subject matter. Essentially the new campaigns will crack down on tax evasion through a process by which IRS experts will decide what compliance issues present enough of a risk that would require action.

What is tax noncompliance?

Tax noncompliance encompasses a wide range of activities that are viewed as unfavorable to the tax system, including tax evasion, which is the criminal nonpayment of taxes. However, these campaigns will also include tax avoidance schemes which, although based on law, can be subject to interpretation and require economic substance.

More about the new campaign system

The IRS’ Large Business and International Division (LB&I) hopes that these issue campaigns will improve return selection, identify issues representing a risk of non-compliance, and IRS’ limited resources.

How were the issues identified?

These issues were identified through extensive data analysis, suggestions from IRS compliance employees, and feedback from the tax community.

Thirteen campaigns-Initial phase

The new issue based exam selection process announced only 13 campaigns to start, which consist of the following areas of risk:

  • IRC 48C Energy Credit
  • Offshore Voluntary Disclosure Program Declines-Withdrawals
  • Domestic Production Activities Deduction, Multi-Channel Video Program Distributors and TV Broadcasters
  • Micro-Captive Insurance
  • Related Party Transactions
  • Deferred Variable Annuity Reserves & Life Insurance Reserves IIR
  • Basket Transactions
  • Land Developers - Completed Contract Method
  • TEFRA Linkage Plan Strategy
  • S Corporation Losses Claimed in Excess of Basis
  • Repatriation
  • Form 1120-F Non-Filer
  • Inbound Distributor

Will more campaigns be identified?

Yes, as mentioned above this is the ‘initial’ phase of the agency’s efforts; more campaigns will be identified, approved and launched in the months ahead.

What form does the response come in?

The ‘response’ from the LB&I will come in the form of one or more ‘treatment streams,’ similar to examinations and letters. The goal is to investigate these issues and ultimately achieve compliance objectives.

What should businesses do to prepare?

Businesses and high net worth individuals dealing with any of the identified issues meet increased IRS audit risk, and ought to work with their legal advisors to prepare for IRS challenges. Contact us for further assistance.

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