Further Audit Campaigns Announced by the IRS Large Business and International Division
July 26, 2019
By Richard Shapiro, CPA
The IRS Large Business and International Division continues to identify additional audit compliance campaigns. In a release dated July 19, 2019, six additional campaigns were announced, bringing the total to 59 campaigns. The new campaigns, which focus on international issues, S corporations and deferred compensation, are as follows:
S Corporations Built-in Gains Tax
C corporations that convert to S corporations are subjected to the built-in gains tax 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, but the IRS notes that S corporations do not always pay this tax when they sell the C corporation assets after the conversion. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions.
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.
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.
High Income Non-Filer
U.S. citizens and resident aliens are subject to tax on worldwide income, whether or not they receive a Form W-2 Wage and Tax Statement, a Form 1099 information return or its foreign equivalents. This campaign concentrates on bringing into compliance those taxpayers who have not filed tax returns.
IRC Sec. 457A Deferred Compensation Attributable to Services Performed Before January 1, 2009
Generally, IRC Sec. 457A requires that any compensation deferred under a nonqualified deferred compensation plan be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009.
IRC Sec. 457A generally applies to deferred amounts attributable to services performed after December 31, 2008. However, if IRC Sec. 457A does not apply to a deferred amount solely because the amount is attributable to services performed before January 1, 2009, the amount is includible in gross income in the later of the last taxable year beginning before 2018 or the taxable year in which there is no substantial risk of forfeiture of the rights to the compensation.
The campaign objective is to verify taxpayer compliance with the requirements of IRC Sec. 457A.
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