IRS Announces Four New Campaigns
Last week, the IRS released the identification and selection of four new campaigns to be used in determining the issues that should be researched, promoted, and/or audited.
In January 2017, the IRS first rolled out the concept of campaigns within its Large Business and International (“LB&I”) division. The IRS explained that LB&L was moving toward issue-based examinations and a compliance campaign process in which the IRS decides which compliance issues that present risk require a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS’ reasoning was that this approach would make use of IRS knowledge and deploy the right resources to address the issues selected.
The campaigns were identified through extensive data analysis, suggestions from IRS compliance employees and feedback from the tax community. LB&I’s stated goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.
The four new campaigns are:
Allocation of Success-Based Fees Without Rev. Proc. 2011-29
Success-based fees paid in transactions under Treas. Reg. § 1.263(a)-5(a) are presumed facilitative and must be capitalized. These fees may instead be allocated to non-facilitative activities, and currently deducted, if the taxpayer meets the documentation requirements under Treas. Reg. § 1.263(a)-5(f). Rev. Proc. 2011-29 allows a safe harbor election for allocating success-based fees paid in covered transactions under Treas. Reg. § 1.263(a)-5(e)(3) without meeting the above documentation requirements so long as 70% of these fees are allocated as non-facilitative and 30% are allocated as facilitative. The goal of this campaign is to ensure taxpayer compliance with current law.
FIRPTA Reporting Compliance for NRAs
FIRPTA taxes foreign persons on the disposition of their U.S. real property interests. Generally the buyer/transferee is the withholding agent and is required to withhold 15% of the amount realized on the sale, file the required forms, and remit the tax to IRS. This campaign is intended to increase FIRPTA voluntary compliance through issue based examinations and external education and outreach.
Section 807(d) – Computation of Life Insurance Reserves
Section 13517 of the Tax Cuts and Jobs Act (“TCJA”) amended section 807(d) to provide a new method for computing life insurance reserves, effective for tax years beginning after December 31, 2017. The goal of this campaign is to examine Forms 1120-L filed by life insurance companies for their 2017 and/or 2018 taxable years (and any related and subsequent year returns) to understand how taxpayers implemented TCJA section 13517, to ensure compliance, and to identify compliant and non-compliant technical issues. The treatment stream for this campaign is issue-based examinations.
Section 807(d) – Re-Computation of Life Insurance Reserves
Section 807(d) sets forth rules for computing the amount of life insurance reserves. The goal of this campaign is to examine original and amended Forms 1120-L filed by life insurance companies for their 2017 and/or 2018 taxable years (and any related and subsequent year returns) to ensure compliance, and to identify compliant and non-compliant technical issues. The treatment stream for this campaign is issue-based examinations.