On January 31, 2017, the IRS announced the initial rollout of its new audit strategy and identified 13 specific issues (campaigns) it will be targeting. The IRS is moving toward issue-based examinations and compliance and will direct resources to areas where compliance present the most risk. Its goal is to improve return selection for audit and to identify issues representing high risk of non-compliance to make efficient use of its limited resources.
The IRS identified the following issues through extensive data analysis, suggestions from IRS compliance employees and feedback from the tax community (these campaigns represent the first wave of the IRS’s issue-based compliance work):
- IRC 48C Energy Credit Campaign
This campaign ensures that only those taxpayers whose advanced energy projects were approved by the Department of Energy, and who have been allocated a credit by the IRS, are claiming the credit.
- OVDP Declines-Withdrawals Campaign
This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. The IRS will address continued noncompliance in a variety of ways including examination.
- Domestic Production Activities Deduction, Multi-Channel Video Program Distributors and TV Broadcasters
This campaign addresses the misuse of the domestic production activities deduction by multi-channel video program distributors and television broadcasters. The IRS has developed a strategy to identify taxpayers impacted by these issues and will develop training to aid revenue agents in examining them.
- Micro-Captive Insurance Campaign
This campaign addresses micro-captive insurance transactions described in Notice 2016-66 in which taxpayers reduce taxable income using contracts treated as insurance contracts and a related company that the parties treat as a captive insurance company.
- Related Party Transactions Campaign
This campaign focuses on transactions between commonly controlled entities that provide taxpayers a means to transfer funds from the corporation to related pass–through entities or shareholders.
- Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign
This campaign’s objective is to collaborate with industry stakeholders, Chief Counsel and Treasury to develop published guidance that provides certainty to taxpayers regarding, among other issues, amounts to be taken into account in determining tax reserves for both deferred variable annuities with Guaranteed Minimum Benefits, and Life Insurance contracts.
- Basket Transactions Campaign
This campaign addresses structured financial transactions described in Notices 2015-73 and 74, in which a taxpayer attempts to defer and treat ordinary income and short-term capital gain as long-term capital gain.
- Land Developers – Completed Contract Method Campaign
This campaign addresses large land developers that construct in residential communities that may be improperly using the Completed Contract Method of accounting.
- TEFRA Linkage Plan Strategy Campaign
This campaign focuses on developing new procedures and technology to work collaboratively with revenue agents conducting TEFRA partnership examinations to identify, link and assess tax to the terminal investors that pose the most significant compliance risk.
- S Corporation Losses Claimed in Excess of Basis Campaign
This campaign addresses shareholders that claims losses and deductions to which they are not entitled because they do not have sufficient stock or debt basis.
- Repatriation Campaign
This campaign addresses taxpayers who do not properly report reparations as taxable events on their returns.
- Form 1120-F Non-Filer Campaign
This campaign addresses foreign companies doing business in the U.S. that do not file Form 1120-F.
- Inbound Distributor Campaign
This campaign addresses U.S. distributors of goods sourced from foreign related companies that have incurred losses or small profits on U.S. returns, which are not commensurate with the functions performed, and risks assumed (IRC 482 issues).