Under continual budgetary pressure and shrinking numbers, the IRS has needed to identify new ways to ensure compliance. Campaigns focusing on certain issues are one way they are planning to stretch limited resources.
How will these new campaigns work? Are traditional audits being replaced? Who is being targeted? What are some of the issues of concern? When do they start? We’ll answer these questions in this post.
Reorganizing around issues of concern
Shifting from its traditional approach of routinely reviewing the returns of large corporate taxpayers to identify issues, the agency will instead initially focus on 13 “issues of concern.” When these issues are noted on a taxpayer return, a “soft letter” (basically a warning) will be sent out.
Changes to forms and published guidance along with examinations (audits will continue to have many traditional features) will continue as some of the other tools. Escalation to a service subject-matter expert and fast track resolution processes will still be available.
Dialogue not necessarily audits
While audits will still play a role, the agency is moving toward published guidance and soft letters for compliance.
The focus is moving down market on issues of repatriation. It used to be that only large multi-national corporations, but mid-market (those with $10 – 250 million in assets) should expect more scrutiny.
S Corporations should expect more attention, especially shareholders claiming losses or deductions that are exceed their basis. This campaign is a surprise to many, because S corp shareholders have not traditionally been audit targets.
Certain industries have also been identified for campaigns:
- Energy credits – Review will ensure Department of Energy approval on advanced energy projects
- Land developers – Completed contract method accounting for home construction contracts will be reviewed for accuracy
Foreign companies that have U.S. subsidiaries will also need to pay attention, because many of the campaigns could also apply to them.
The new structure allows the agency to add campaign issues as necessary. New priorities will be launched in rounds of campaigns. For business owners, it’s important to partner with a skilled tax attorney to stay ahead of and up-to-date on agency priorities. When an IRS agent has questions, seek professional counsel before submitting a response.