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January 16, 2020

Changes in International Tax Compliance Campaigns

International Tax Compliance

A recent report from the Treasury Inspector General for Tax Administration (TIGTA) indicates that the tax compliance campaigns the IRS launched a few years ago have not been producing expected results.  If recommendations from the TIGTA report are followed, international companies can expect changes in these compliance campaigns.

History of Compliance Campaigns

By way of background, the IRS has been battling resource shortages for years and in 2017 announced it would be shifting its compliance efforts in the Large Business and International (LB&I) Tax Division. Data would be used to identify the compliance focal points for LB&I companies and, from that initiative — to date — 53 unique compliance campaigns have been created (certain of which we described this past summer).

The campaigns’ data analytic approach was expected to better target the issues posing the greatest non-compliance risks while conserving IRS resources. The LB&I Division also anticipated that the campaigns would significantly increase its inventory of review cases.

Expectations v. Reality

The TIGTA audit found that in reality these data-driven compliance campaigns did not significantly contribute to the LB&I Division’s inventory of cases. As of February 2019, campaigns contributed only 15% of the total inventory.

In part, the LB&I Division did not select the campaign subjects solely from areas that posed the greatest non-compliance risks. Some came from employee suggestions while others were adopted because the LB&I Division already had training in place and/or institutional knowledge available.

Recommendations

Going forward, TIGTA recommended that the LB&I Division create a compliance approach that considers past compliance results and potential impacts on compliance to prioritize the issues for its campaigns. This could potentially improve its processes for prioritizing campaigns before routing them to the appropriate Practice Areas. TIGTA also recommended that the LB&I division ensures that actionable metrics and measures are put in place to monitor the success of such changes.

The LB&I Division has already been using (in part) past compliance results to inform its approach, and in response to the recommendations from TIGTA has reaffirmed its commitment to using those results to guide future compliance initiatives.

What This Means for International Businesses

These changes mean that certain international and other tax campaigns may be de-prioritized and that others may be further prioritized or added. We will continue to monitor such developments as they occur.

For more information on these developments, please contact John Forry.

2019 Quarterly International Tax Updates

Q1 2019:: Key International Tax Regulations Remain in Limbo After Rollback

Q2 2019: IRS Expands International Tax Compliance Campaigns

Q3 2019: What France’s Digital Services Tax Says About Tech and Taxes

2019 Individual Tax Planning Supplement

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