IRS announces new audit campaigns

Historically, IRS business audit exams were typically conducted by examining a taxpayer’s records and following any issues that might emerge. However, The Large Business and International Division of the IRS recently announced new campaigns to identify issues before an examiner walks in the door. One could characterize the campaigns as issues in search of facts.

Following are the recently announced campaigns, which all focus on international issues:

• Micro Captive Insurance (aka Section 831(b) Captives)
• Related Party Transactions
• Repatriation Transactions
• Foreign Owned Distribution Companies

The campaigns are built around specialist teams focused on particular issues. These IRS teams will have deep expertise in their respective areas and will be a national resource for local IRS audit teams. Early indications are that the campaign teams will be aggressive.

One complicating factor is that much of the current IRS appeals officer workforce will be retiring soon. Appeals officers have traditionally been the counterweight to overzealous exam teams. The combination of aggressive campaigns and a less robust appeals team may lead to lengthier and somewhat more acrimonious tax audits.

There is still much to come on this issue, so stay tuned for further developments.