LB&I Adds 2 & Removes 4 Compliance Campaigns Resulting in 58 Active Tax Audit Campaigns

On September 25, 2020, we posted LB&I Adds Four Compliance Campaigns To 57 Active Campaign List, where we discussed that the IRS Large Business and International (LB&I) division has added four new compliance campaigns to its active campaigns list of 57 campaigns in total.

Now on its Active Campaigns website, the IRS Large Business and International Division (LB&I) has added two new compliance campaigns to its list of active campaigns and has removed four from that list, bring its list to 58 campaigns.

In January 2017, the IRS announced a new audit strategy for its Large Business and International Division (LB&I) known as " compliance campaigns." With the compliance campaigns, LB&I essentially shifted to examinations based on compliance issues that LB&I determined presented greater levels of compliance risk, thereby improving return selection. 

The LB&I, on its Active Campaigns website, has added the following two new campaigns to its active campaigns list:

1. Puerto Rico Act 22, Individual Investors Act. This campaign addresses taxpayers who have claimed benefits through Puerto Rico Act 22, “Act to Promote the Relocation of Individual Investors to Puerto Rico,” without meeting the requirements of Code Sec. 937 (i.e., without being bona fide residents of Puerto Rico). As a result, these individuals may be excluding income subject to U.S. tax on a filed U.S. income tax return or failing to file and report income subject to U.S. tax.

        This campaign will also address those individuals who have met the requirements of Code Sec.                 937 but who may be erroneously reporting U.S. source income as Puerto Rico source income to             avoid U.S. tax. This campaign will address noncompliance in this area through examinations,                 outreach, and "soft letters." 

     2. Taxable asset transactions - matching buyers and sellers. Parties that participate in certain                     taxable asset transactions must report those transactions on either Form 8594 or Form 8883,                     which must be attached to their tax return. This campaign addresses business entities under the                 jurisdiction of LB&I that either (1) did not report a transaction on Form 8594 or Form 8883, or                 (2) reported the transaction in a manner inconsistent with the other party’s reporting of the                     transaction.

The Active Campaigns website doesn't say how LB&I will address noncompliance in this area. 

LB&I has removed the following campaigns from its “Active Campaigns” website:

1. Basket transactions. This campaign addressed structured financial transactions where the taxpayer treats an option or other derivative as open until a barrier event occurs and, therefore, does not recognize or report current period gains. The gains are deferred until the contract terminates; at which time the overall net gain is reported as a long-term capital gain. LB&I used issue-based examinations, "soft letters" to material advisors, and practitioner outreach to address noncompliance during this campaign.
2. Interest capitalization for self-constructed assets. When a taxpayer engages in certain production activities, they are required to capitalize interest expense under Code Sec. 263A. Interest capitalization applies to interest a taxpayer pays or incurs during the production period when producing property that meets the definition of designated property. The goal of this campaign was to ensure taxpayer compliance by verifying that interest is properly capitalized for designated property and the computation to capitalize that interest was accurate. LB&I used issue-based examinations, education soft letters, and educating taxpayers and practitioners to encourage voluntary compliance during this campaign.
3. Partnership stop filer.  Partners report income, losses, and other items passed through from their partnership. Some partnerships stop filing tax returns for various reasons yet still have economic transactions that are not being reported to their partners. That activity is likely not being reported by the partners. LB&I used issue-based examinations, soft letters encouraging voluntary self-correction, and stakeholder outreach to address noncompliance during this campaign.
4. Related-party transaction campaign. This campaign focused on transactions between commonly controlled entities that provide taxpayers a means to transfer funds from the corporation to related passthrough entities or shareholders. LB&I used issue-based examinations to address noncompliance during this campaign.

As an IRS Tax Defense Law Firm, outside of:

1. Form3520/3520-A Compliance and Penalties,
2. Micro-Captive Insurance Campaign,
3. Post OVDP Compliance
4. Swiss Bank Program Campaign and
   
5. Syndicated Conservation Easement Transactions
   

we have not seen nor heard of any action in the remaining 53 listed campaign areas?

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