The Large Business and International (LB&I) division of the IRS recently announced 13 campaigns to enhance compliance in a wide range of areas. The purpose of these campaigns is to help LB&I identify risks and issues through a selective process from which they can better plan their resources and provide different “treatment streams” to achieve their objectives. As stated in the January 31, 2017 release, the campaigns were identified through LB&I’s extensive data analysis, suggestions from IRS compliance employees, and feedback from the tax community. LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.
Further information is likely to come regarding the different treatment streams that the IRS is considering. It appears that not only will examinations still be used, but “soft letters” will be introduced by the IRS. As LB&I commissioner Doug O’Donnell stated, “[w]e’ve talked about continuing to do examinations, but we use terms like ‘soft letters’, where we might write to a group of taxpayers that have a particular item or issue on their return to ask them whether they meant to report it the way that they did, or is there something more to it.” Other examples of treatment streams may include the development of published guidance or a practice unit in certain campaign areas.
The campaigns themselves are divided among five practice areas, and each campaign has a lead executive from the LB&I division. The initial announcement briefly described each campaign, what issues they plan to address, and the probable treatment streams.
The 13 campaigns broken down by area are as follows:
- IRC 48C Energy Credit Campaign
- Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters
- Micro-Captive Insurance Campaign
- Related Party Transactions Campaign
- Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign
- Basket Transactions Campaign
- Land Developers- Completed Contract Method (CCM) Campaign
- TEFRA Linkage Plan Strategy Campaign
- S Corporation Losses Claimed in Excess of Basis Campaign
- Repatriation Campaign
- Form 1120-F Non-Filer Campaign
Withholding & International Individual Compliance Campaign
- OVDP Declines-Withdrawals Campaign
Treaty and Transfer Pricing Operations
- Inbound Distributor Campaign
In an effort to gain more insight, we spoke to the lead executive, Pamela Drenthe, of the OVDP Declines-Withdrawals Campaign, on February 23, 2017. She stated that, although there have not been any further formal announcements, more information is coming on all campaigns. This information may be released in the traditional sense (i.e. pronouncements) and webinars. The IRS subsequently announced that they will participate in a series of webinars to provide tax practitioners with additional information about its new compliance campaigns.
On March 7, 2017, the IRS held its first of an eight-part webcast series titled “Understanding LB&I Campaigns”. Two representatives of the LB&I Division, Tina Meaux, Assistant Deputy Commissioner, Compliance Integration and Kathy Robbins, Director, Enterprise Activities Practice Area (also Lead Executive on a number of Campaigns) participated in the webinar. Tina Meaux began with a general overview, which included that the campaign process incorporates nine different practice areas, the five practice areas mentioned above, and four geographical areas. She acknowledged that the campaigns are a fundamental change in the way the IRS has been selecting and performing work, mainly as a result of their limited resources. She also stated “we think that the campaign process will help us focus on the right issues, by using the right resources and using the right treatment streams. We felt it was very important to focus on the right issues, by using the right resources to be able to drive specific compliance in a particular issue.”
Both Meaux and Robbins kept driving the point that the IRS is interested in feedback from external and internal sources, and may adapt campaigns and the related process based on this feedback as well as taxpayer behavior and resources of the IRS. Some other highlights of the webinar included:
- A taxpayer will not be notified that they were selected as part of a campaign, but if the taxpayer inquires, LB&I will disclose that they were selected as part of the campaign process.
- Each campaign will have its own metrics which the IRS does not plan to release publicly.
- The mere fact that a taxpayer has been identified with a campaign, doesn’t automatically suggest noncompliance or that there will be an adjustment. As always, each case is based on facts and circumstances.
- It is possible a taxpayer can be part of multiple campaigns.
- The campaign process will not change the examination process. In addition, the agent assigned to the campaign case will have the ability to review additional issues that may arise with manager’s approval.
- Taxpayers should have access to issue/case managers, as well as the subject matter expert. If necessary, taxpayer can always contact the Lead Executive of the respective campaign.
- No set timetable for additional campaigns, but it is probable there will be more campaigns, and that the percentage of campaign work will increase in the future. If a campaign is discontinued, the IRS will release it publicly.
We will monitor the remaining seven webinars and the development of these campaigns, and update everyone on a regular basis.
If you have any questions regarding any of these new campaigns, please do not hesitate to contact a member of Citrin Cooperman’s IRS Representation & Tax Controversies Practice Group.