The Large Business and International division (LB&I) of the IRS announced in July the approval of six additional compliance campaigns for taxpayers. The LB&I to date has announced a total of 59 new campaigns.
What is an IRS Compliance Campaign?
An IRS compliance campaign is a specific directive on a particular tax issue which happens when the IRS determines that there are taxpayer issues which require a response from the IRS agency. When the IRS announces a campaign, it usually indicates that they will be dedicating resources, training, time, and tools towards a tax compliance goal.
S Corporation Compliance Campaign
If you are an S Corporation or considering starting an S Corporation, this newly approved campaign will affect your business:
S Corporations Built-in Gains Tax
Practice Area: Pass-Through Entities
“C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within five years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners,” according to the IRS.
What is an S Corporation?
An S corporation is a corporation that elects to pass corporate deductions, income, losses, and credits through to their shareholders for federal tax purposes. S corporation shareholders benefit from reporting the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rate vs. the corporate rate. S corporations get to avoid double taxation on the corporate income, and they are responsible for tax on certain built-in gains and passive income at the entity level.
One of the main reasons to set up a business as an S corporation is to protect the personal assets of its shareholders. You do not pay federal taxes at a corporate level as an S corporation. Talk with your CPA about the numerous advantages and disadvantages.
Other IRS Newly Approved Campaigns
Here are the other newly approved campaigns and the IRS reason behind the campaigns as posted on www.IRS.gov:
Post OVDP Compliance
Practice Area: Withholding & International Individual Compliance
U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.
Expatriation
Practice Area: Withholding & International Individual Compliance
U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.
High Income Non-filer
Practice Area: Withholding & International Individual Compliance
U.S. citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or its foreign equivalents. Through an examination treatment stream, this campaign will concentrate on bringing into compliance those taxpayers who have not filed tax returns.
U.S. Territories – Erroneous Refundable Credits
Practice Area: Withholding & International Individual Compliance
Some bona fide residents of U.S. territories are erroneously claiming refundable tax credits on Form 1040, U.S. Individual Income Tax Return. This campaign will address noncompliance through a variety of treatment streams, including outreach and traditional examinations.
Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009
Practice Area: Northeastern Compliance Practice Area
This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009. In general, Internal Revenue Code (IRC) Section 457A requires that any compensation deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. The campaign objective is to verify taxpayer compliance with the requirements of IRC Section 457A through issue-based examinations.
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