The IRS Large Business and International (LB&I) division has added four new compliance campaigns to its active campaigns list of 57 campaigns in total.

In 2017, LB&I announced the identification and selection of 13 initial compliance campaigns. With the new compliance campaigns, LB&I essentially shifted to examinations based on compliance issues that LB&I determined presented greater levels of compliance risk, thereby improving return selection. Since the initial 13 campaign announcement, LB&I has added additional campaigns.

The IRS has announced the following new campaigns:

1. Allocation of success-based fees. Success-based fees paid in transactions under Treas. Reg. § 1.263(a)-5(a) are presumed facilitative and must be capitalized. These fees may instead be allocated to non-facilitative activities, and currently deducted, if the taxpayer meets the documentation requirements under Treas. Reg. § 1.263(a)-5(f). Rev. Proc. 2011-29 allows a safe harbor election for allocating success-based fees paid in covered transactions under Treas. Reg. § 1.263(a)-5(e)(3) without meeting the above documentation requirements so long as 70% of these fees are allocated as non-facilitative and 30% are allocated as facilitative. The goal of this campaign is to ensure taxpayer compliance with current law.
2. FIRPTA reporting compliance for NRAs. FIRPTA taxes foreign persons on the disposition of their U.S. real property interests.  Generally the buyer/transferee is the withholding agent and is required to withhold 15% of the amount realized on the sale, file the required forms, and remit the tax to IRS. This campaign is intended to increase FIRPTA voluntary compliance through issue based examinations and external education and outreach.
3. Computation of life insurance reserves under Sec. 807(d). Section 13517 of the Tax Cuts and Jobs Act (TCJA) amended Internal Revenue Code (IRC) section 807(d) to provide a new method for computing life insurance reserves, effective for tax years beginning after December 31, 2017. IRC section 807(d)(1) provides generally that, for purposes of determining life insurance company taxable income, the amount of the life insurance reserves for any contract (other than a contract to which IRC section 807(d)(1)(B) applies (relating to variable contracts)), is the greater of the net surrender value of such contract or 92.81 percent of the reserve determined under IRC section 807(d)(2), subject to the statutory cap as provided in IRC section 807(d)(1)(C).
4. Re-computation of life insurance reserves. Internal Revenue Code (IRC) section 807(d) sets forth rules for computing the amount of life insurance reserves. Under prior law, the interest rate used in this computation is the greater of: (i) the applicable federal interest rate (AFIR) (as prescribed under IRC section 846(c)(2)); or (ii) the prevailing State assumed interest rate (PSAIR) (as defined in IRC section 807(d)(4)(B)). See former IRC section 807(d)(2)(B). However, a taxpayer could elect to recompute, every five years, the AFIR used in this computation of life insurance reserves. See former IRC section 807(d)(4)(A)(ii).

As an IRS Tax Defense Law Firm, outside of:

1. Form3520/3520-A Compliance and Penalties,
2. Micro-Captive Insurance Campaign,
3. Post OVDP Compliance
4. Swiss Bank Program Campaign
5. Syndicated Conservation Easement Transactions

we have not seen nor heard of any action in the remaining 52 listed campaign areas?

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The Treasury Inspector General for Tax Administration (TIGTA) reviewed the levies issued to taxpayers by the different functions within the IRS Collection organization during the period October 1, 2018, through September 30, 2019, found a number of problems associated with IRS levies issued by the Automated Collection System (ACS). 

The TIGTA review found that of the 194,498 taxpayers that received these levies, 145 taxpayers were not timely informed of their Collection Due Process (CDP) rights. The review said, "When an additional amount is assessed to a delinquent account of a taxpayer, an additional CDP notice must be issued to the taxpayer," the audit said. However, out of the 84,513 taxpayers that received additional assessments prior to the ACS levy, four (4) taxpayers did not receive a new CDP notice. IRS also must suspend collection action during the CDP hearing process, TIGTA said.

"However, Of The 194,498 Taxpayers That Received
ACS Levies, TIGTA Identified Three (3) Taxpayers With Levies Issued While A CDP Hearing Was Pending," The Audit Said.

According to the audit, revenue officers issued 58,546 levies utilizing the Integrated Collection System (ICS).

From this population, TIGTA identified: 

1. 25 taxpayers that were not notified of the CDP rights; 
2. 24 taxpayers that were not timely notified of their CDP rights; and 
3. 25 taxpayers that were not notified of their CDP rights when the CDP notice transaction code was incorrectly reversed. 
4. In addition, out of almost 17,000 taxpayers that received additional tax assessments prior to the levy, audits identified 51 taxpayers that did not receive a new CDP notice subsequent to the time the additional assessment was made.

Finally, "TIGTA also identified 40 taxpayers out of 58,546 that received ICS levies while a CDP hearing was pending in violation of the law," the audit said. Of the seven recommendations made by TIGTA, IRS agreed with six and said it will take alternative corrective action related to the remaining recommendation. 

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The IRS has released final regs that provide guidance for certain foreign persons that recognize gain or loss from the sale or exchange of an interest in a partnership that is engaged in a trade or business within the U.S.

The final regs retain the basic approach and structure of the proposed regs with certain revisions described below. 

1. Determining deemed sale EC gain or deemed sale EC loss. The final regs retain the basic framework of the proposed regs, including the factual determinations regarding assets attributable to an office or fixed place of business in the U.S. maintained by the partnership ("office attribution rule") (Reg §1.864(c)(8)-1(c)(2)(ii)(B) through Reg §1.864(c)(8)-1(c)(2)(ii)(E)) 
2. Ten-year exception. The final regs retain the ten-year exception as an exception to the determination of deemed sale EC gain and EC loss under Reg §1.864(c)(8)-1(c)(2)(i)(A). 
3. Sourcing rules. The final regs make several changes to the general sourcing rule provided in Prop Reg §1.864(c)(8)-1(c)(2)(i).
4. Look-back rule for inventory property. The final regs provide a look-back rule for determining the foreign source portion of deemed sale EC gain or EC loss attributable to inventory property that is held by the partnership on the date of the deemed sale. 
5. Look-back rule for intangibles. To minimize the difficulty of applying the sourcing rules to intangible property and to provide more certainty, the final regs provide a separate rule for intangibles (including going concern value) that determines the foreign source portion of deemed sale gain or loss attributable to intangibles by using a proxy method that is based on the source of the partnership’s historic gross ordinary income. (Reg §1.864(c)(8)-1(c)(2)(ii)(C)) 
6. Depreciable personal property. The final regs provide a two-part approach for determining the foreign source portion of deemed sale EC gain and EC loss attributable to depreciable personal property. The first part applies a recapture principle to the extent of depreciation adjustments taken with respect to the property. The second part focuses on where the property is located to the extent the property has deemed sale EC gain in excess of its depreciation adjustments or if the property has deemed sale EC loss. (Reg §1.864(c)(8)-1(c)(2)(ii)(D)) 
7. Material change in circumstances rule. The final regs provide a material change in circumstances rule for inventory and intangibles. When this rule applies, the foreign source portion of deemed sale EC gain or EC loss attributable to inventory property or intangibles may be determined using a modified look-back period. Taxpayers can use this material change in circumstances rule to remedy an incorrect sourcing result with respect to inventory property and intangibles. (Reg §1.864(c)(8)-1(c)(2)(ii)(E)) 
8. Treaty coordination. The final regs retain the general rule that prevents taxation of gain on assets that do not form part of a U.S. permanent establishment, but also address certain gains that may be taxed without regard to whether there is a U.S. permanent establishment (for example, gains from the disposition of certain USRPI). (Reg §1.864(c)(8)-1(f)) The final regs also add a rule coordinating these regs with treaty provisions governing the disposition of USRPI, which allow the U.S. to tax gain derived from the disposition of the USRPI without regard to whether the USRPI forms a part of a partnership’s permanent establishment. (Reg §1.864(c)(8)-1(f)) Partner-specific exclusions and exceptions. Under the final regs, a foreign transferor’s distributive share of deemed sale EC gain or EC loss does not include any amount that is excluded from the foreign transferor’s gross income or otherwise exempt from U.S. Federal income tax under the Code. (Reg §1.864(c)(8)-1(c)(3)(i)) 
9. Clarification of Sec. 897 coordination rule with respect to nonrecognition provisions. The final regs clarify the interaction between the Code Sec. 897 coordination rule and the nonrecognition provision described in Reg §1.864(c)(8)-1(b)(2)(ii). Specifically, the final regs provide that any transfer of an interest in a partnership as part of a nonrecognition transaction will not be subject to Code Sec. 864(c)(8) to the extent that the gain or loss on the transfer is not recognized. Instead, if the partnership owns one or more USRPI, Code Sec. 897(g) and its regs will apply with respect to the unrecognized gain or loss. (Reg §1.864(c)(8)-1(d)) 

The final regs generally apply to transfers occurring on or after December 26, 2018 (that is, the date on which the proposed regs were filed with the Federal Register). While not subject to these final regulations, transfers occurring on or after November 27, 2017, but before December 26, 2018, are subject to Code Sec. 864(c)(8). In addition, the final regs apply to amounts taken into account on or after December 26, 2018, pursuant to an installment sale occurring on or after November 27, 2017 and before December 26, 2018. (Reg §1.864(c)(8)-1(j) and Reg §1.897-7(c)) 

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Sources

IRS

Thomson Reuters

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In Announcement 2020-12 the IRS said that when all or a portion of the stated principal amount of a covered loan is forgiven because the recipient satisfies the forgiveness requirements under section 1106 of the CARES Act, an entity isn’t required to, “for federal income tax purposes only,” and should not, file a Form 1099-C information return with the IRS or provide a payee statement to the recipient as a result of the forgiveness.

The IRS noted that filing such information returns with the IRS could result in the issuance of underreporter notices on the IRS’s Letter CP2000 to eligible recipients, and furnishing payee statements to those recipients could therefore cause confusion. The IRS issued the announcement with the goal of preventing such confusion.

The announcement may lead to some confusion anyway, however, as the transparency around the PPP loans has been the subject of some wrangling in Congress. Earlier this year, Democrats pressured the Small Business Administration to release more information about the recipients of the loans. Some information eventually came out in the form of spreadsheets, but the data proved to be inaccurate in many cases. 

Earlier this month, the Justice Department’s Criminal Division charged 57 defendants with PPP-related fraud and has identified nearly 500 people suspected of COVID-related loan fraud.

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