On May 21, 2018, the Large Business and International (LB&I) Division of the IRS released six additional Compliance Campaigns. Initially rolled out in January 2017, LB&I’s Compliance Campaigns are designed as an issue-based approach to address areas of tax that the Service has identified as having a high risk of compliance issues. This determination is based on extensive data analysis as well as suggestion from IRS employees and other members of the tax community.
Of the six campaigns announced on May 21, three revolve around nonresident aliens (NRA’s). These three campaigns, Nonresident Alien Tax Treaty Exemptions, Nonresident Alien – Schedule A and Other Deductions, and NRA Tax Credits, will attempt to increase compliance through both outreach, education and traditional examinations. The Nonresident Alien Tax Treaty Exemptions campaign is aimed at increasing compliance related to requests for exemptions under U.S. tax treaties. The Nonresident Alien – Schedule A and Other Deductions campaign is designed to address issues surrounding improper deductions claimed on Form 1040NR Schedule A. Lastly, the NRA Tax Credit campaign targets Nonresident taxpayers claiming improper credits related to dependents and education.
Two of the three remaining campaigns involve issues surrounding reporting and withholding requirements for international taxpayers. The Forms 3520/3520-A Non-Compliance and Campus Assessed Penalties campaign, addresses compliance issues arising from the filing of information returns reporting both ownership of, and transactions involving, foreign trusts. The Forms 1042/1042-S Compliance campaign is intended to address withholding agents failing to meet their withholding and reporting requirements for US sourced income paid to foreign individuals. Both of these campaigns will be pursued through traditional examinations, as well as the assessment of penalties for the Forms 3520/3520-A Non-Compliance and Campus Assessed Penalties campaign.
The last campaign announced on May 21 focuses on interest capitalization. The Interest Capitalization for Self-Constructed Assets campaign was developed to help identify and educate those taxpayers required to capitalize interest under IRC § 263A. The Service intends to increase compliance through a combination of different education techniques and examination. Primarily, this campaign is targeted towards taxpayers producing property designated under IRC § 263A. This property includes real estate and tangible personal property that has a useful life of at least 20 years, an estimated production period exceeding two years, and an estimated cost greater than $1,000,000.
Previously, the Service announced Campaigns on Jan. 31, 2017, Nov. 3, 2017, and March 31, 2018. Including this most recent round of campaigns, LB&I has now announced 35 total areas for enforcement. The releases continue to narrow the focus of issues being scrutinized, so taxpayers believing that they may be affected by one these campaigns would be best suited to consult with a tax professional. Should you have any questions regarding LB&I’s campaigns, or any other complex tax issue please contact Steven Miller, alliantgroup, LP’s National Director of Tax, at Steven.Miller@alliantgroup.com.