IRS Campaigns Tackle Compliance Issues
In 2017, Large Business and International (LB&I), the division of the IRS which serves corporations, subchapter S corporations, and partnerships with assets greater than $10 million, announced the identification of 13 initial campaigns, some of which are directed primarily at international tax issues concerning individuals with offshore contacts. The launch of such campaigns is the culmination of an extensive effort to redefine compliance work and build a supportive infrastructure. The campaign program allows LB&I to address significant compliance and resource challenges.
Below is a list of the campaigns that may be of interests to taxpayers living overseas or who have overseas contacts.
Post OVDP Compliance
US persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.
US citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.
High Income Non-filer
US citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or its foreign equivalents. Through an examination treatment stream, this campaign will concentrate on bringing into compliance those taxpayers who have not filed tax returns.
Loose Filed Forms 5471
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions. Some taxpayers are incorrectly filing Form 5471 by sending the form to the IRS without attaching it to a tax return (or partnership or exempt organization return, if applicable).
If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.
In addition to the above, UK resident individuals are starting to receive “FATCA” letters from their banks and other financial institutions. These letters advise the individuals that the bank believes they may be US taxpayers and asks the individuals to complete various identification forms. For many of these individuals, it is the first time that they have become aware that they may be US taxpayers and that they may have US tax filing obligations.
It is also clear that the IRS is aggressively reviewing various informational returns for errors or late filing. These forms often carry substantial penalties for late filing or for filing with incorrect information; often starting at $10,000. Letters from the IRS involving these matters give the taxpayer little time to respond before the IRS indicates it will issue a penalty notice.