November 29, 2022
Attention taxpayers: IRS has six new compliance campaigns
The agency will focus on tax issues that taxpayers are more likely to misunderstand, not know about, improperly handle on returns or ignore.
In July 2019, the IRS Large Business and International division, referred to as LB&I, announced six new tax law compliance campaigns designed not only to uncover returns that contain particular errors, but also to provide education and outreach to taxpayers about how to comply with the law in the focus areas.
These six campaigns are the 60th through 65th campaigns this division has launched. LB&I chose each campaign based on IRS employee suggestions plus analysis of data. According to the LB&I announcement, the division’s goals in these new campaigns are:
- Smart use of limited government resources
- Focus on issues with high noncompliance risk
- Improve the agency’s methodology to select for review those filed returns likely to show noncompliance in these six areas of tax law
When a C corporation is converted into an S corporation, if the S corporation sells off C corporation assets at any time up to five years after the change in entity type, the S corporation must pay “Built-in Gains” or “BIG” tax on any gain realized in the asset sale. The IRS says that some S corporations have failed to pay BIG tax in these circumstances. The agency plans to wage an information campaign about this issue in general and specifically to tax practitioners as well as focus on examining tax returns that could involve BIG taxes.
The IRS taxes American taxpayers on income earned anywhere in the world. In the last decade, the IRS has run a series of Offshore Voluntary Disclosure Programs, called OVDPs, to coax taxpayers to come forward and disclose foreign income that was not reported. In the new compliance effort, the agency will look at whether taxpayers who used OVDPs have continued to comply with offshore income and asset reporting.
When a citizen or long-term resident moves out of the country, their U.S. tax filing and payment obligations do not necessarily go away. This compliance campaign will focus on those who expatriated on or after June 17, 2008. The agency will conduct examinations of returns and do an information outreach.
This campaign focuses on citizens and resident aliens who may owe income tax on earnings generated anywhere across the globe, but who failed to file appropriate U.S. tax returns. The IRS requires that such a taxpayer file a return whether or not they received W-2s, 1099s or similar documents issued by other governments.
Refundable tax credits
The agency will increase awareness and audit returns of bona fide residents of U.S. territories on the issue of refundable tax credits that those taxpayers were not eligible to claim. Refundable credits are those that do not just reduce tax owed (nonrefundable credits), but rather can result in cash refunds.
A nonqualified deferred compensation plan or NQDC is an agreement between an employee and employer that the employer will pay income to the employee sometime in the future. The compliance campaign focuses on increasing correct reporting of income deferred pursuant to an NQDC earned before 2010. This kind of deferred income plan is generally taxable to the recipient “when there is no substantial risk of forfeiture of the rights to such compensation,” according to the IRS announcement.
Anyone who is concerned or has questions about any of these issues on which the IRS is currently focusing should talk to a tax attorney as soon as possible.