The IRS Large Business and International division – which serves corporations, subchapter S corporations, and partnerships with assets greater than $10 million – has announced a new series of targeted audits, referred to as “campaigns.” These campaigns will target 13 specific issues affecting a broad spectrum of taxpayers and industries, and marks a significant step forward in the IRS’ move toward issue-based examinations. By focusing examinations on specific issues, the IRS hopes to channel the development and determination of tax issues into the hands of those agents that have the most knowledge and training in that particular subject matter. These campaigns will make use of soft contacts, or warning letters, to encourage voluntary compliance with certain identified issues as a way to increase compliance without the IRS expending audit personnel resources.
Some of the more noteworthy campaigns identified by the IRS are: (i) Code Section 48C Energy Tax Credits, (ii) OVDP Declines-Withdrawals, which will audit taxpayers that either were denied participation in, or chose to opt out of, the IRS’ Voluntary Disclosure Program, (iii) Micro-Captive Insurance, auditing taxpayers who were involved with captive insurance arrangements center based on the income-exclusion rule of Section 831(b) [Note: The IRS recently identified Section 831(b) micro-captives as transactions of interest, requiring insuring businesses, their owners, and the micro-captive to file detailed disclosures with the IRS by May 1, 2017. Click here to read my recent blog post.], (iv) Related-Party Transactions, which will focus on transactions between commonly-controlled entities, (v) S Corporations Losses Claimed in Excess of Basis, which, as the name suggests, will target taxpayers with significant S corporation losses and questionable basis to support the deductibility of those losses, and (vi) campaigns aimed at international activities, auditing repatriation structures and Form 1120-F non-filers. The IRS has stated its intentions to roll out additional campaigns in the coming months. For more information on the IRS’ new audit campaigns, click here .