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IRS Announces New Compliance Initiatives to Collect More Corporate Tax Using Inflation Reduction Act Funds

by Kevin Spencer, Edward L. Froelich and Shawn O’Brien | Oct 24, 2023 | IRS Audits, IRS Guidance

On October 20, 2023, the Internal Revenue Service (IRS) announced new initiatives “to ensure large corporations pay taxes owed.” These initiatives leverage the substantial additional congressional funding that was given to the IRS thanks to the Inflation Reduction Act of 2022 (IRA). (We previously reported on how IRS enforcement is impacted by IRA funding here.) The announcement explains:

The IRS is working to ensure large corporate and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap.

The announcement also outlines three new initiatives aimed at collecting tax revenue from large corporations:

1. The large foreign-owned corporations transfer pricing initiative. The IRS will focus its attention on US subsidiaries of foreign companies that distribute goods in the United States. Based on data likely received through the now retired Inbound Distributor Campaign, the IRS believes that some of these foreign companies “report losses or exceedingly low margins year after year through the improper use of transfer pricing to avoid reporting an appropriate amount of U.S. profits.” To jump start its initiative, the IRS will be notifying 150 subsidiaries of large foreign corporations “to reiterate their U.S. tax obligations and incentivize self-correction.” These “soft letters” can be a prelude to an audit.

2. The IRS will expand its Large Corporate Compliance (LCC) program. We previously reported on the LCC program, which focuses on noncompliance by using data analytics to identify large corporate taxpayers for audit. With an increased number of staff as a result of IRA funding, the IRS will commence examination of an additional 60 corporations that were selected using a combination of artificial intelligence and subject matter expertise. Key selection metrics will include factors from the various active compliance campaigns.

3. Cracking down on the abuse of former Internal Revenue Code (IRC) Section 199 domestic production activity deduction. The IRS has been battling taxpayers’ IRC Section 199 deductions since its promulgation. We have reported extensively on this topic over the years. The battle between the IRS and taxpayers has heated up in the wake of the repeal of IRC Section 199, which precipitated taxpayers filing billions of dollars of refund claims. The recent $1.8 billion taxpayer loss in Bats Global Market Holdings, Inc., No. 22-9002 (10th Cir. July 12, 2023), aff’g 158 T.C. No. 5 (2022), has clearly emboldened the IRS to intensify its existing Section 199 audit campaign to address noncompliance and review high-risk claims.

In the announcement, the IRS also reported that it has been pursuing high income, high-wealth individuals who have either not filed their taxes or failed to pay recognized tax debt. The IRS is focused on taxpayers with more [...]

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Weekly IRS Roundup September 11 – September 15, 2023

by Evan Walters | Sep 19, 2023 | IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 11, 2023 – September 15, 2023.

September 11, 2023: The IRS released Internal Revenue Bulletin 2023-37, which includes the following:

Revenue Ruling 2023-16 provides the applicable federal rates for September 2023.
Revenue Ruling 2023-17 sets forth the underpayment and overpayment interest rates under Code Section 6621 for the calendar quarter beginning October 1, 2023.
Revenue Procedure 2023-29 provides the applicable percentage table used to calculate the premium tax credit under Code Section 36B.
Notice 2023-62 announces a two-year administrative transition period with respect to the requirement under Code Section 603 that catch-up contributions made on behalf of certain eligible participants be designated as Roth contributions. The notice also requests comments for further guidance with respect to Code Section 603.
Announcement 2023-25 and Announcement 2023-26 revoke tax-exempt classification for specified organizations.
Announcement 2023-28 corrects citations in Revenue Procedure 2023-27.

September 12, 2023: The IRS released Notice 2023-64, which provides interim guidance on the corporate alternative minimum tax (CAMT). The notice lists financial statements that meet the definition of an applicable financial statement, provides general rules for determining “financial statement income” and includes guidance on when corporations are subject to the CAMT. Notice 2023-64 supplements and clarifies Notice 2023-07 and Notice 2023-20.

September 12, 2023: The IRS released Revenue Procedure 2023-31, providing guidance on Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, and Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan, which must be filed for plan years beginning on or after January 1, 2024. Revenue Procedure 2023-31 supersedes Revenue Procedure 2015-47.

September 12, 2023: The IRS published Tax Tip 2023-110, advising taxpayers to look out for scammers posing as charities and to ensure their donations are going to legitimate charitable organizations.

September 13, 2023: The IRS extended tax relief to individuals and businesses impacted by Hurricane Idalia in 28 counties in Georgia. As a result, affected individuals filing personal income tax returns on extensions expiring October 16, 2023, calendar-year partnerships and S corporations whose extensions expire on October 16, 2023, and calendar-year corporations whose 2022 extensions expire on November 15, 2023, now have until February 15, 2024, to file returns and pay related taxes.

September 14, 2023: The IRS announced an immediate moratorium through at least the end of the year on processing new claims for the Employee Retention Credit (ERC). The moratorium is in response to promoters who have aggressively marketed the credit to businesses without regard for their eligibility. Hundreds of criminal cases related to ERC claims are being worked, [...]

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Weekly IRS Roundup August 14 – August 18, 2023

by Evan Walters | Aug 22, 2023 | IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 14, 2023 – August 18, 2023.

August 14, 2023: The IRS published Internal Revenue Bulletin 2023-33, which includes:

Revenue Procedure 2023-26, describing a program that provides an opportunity for fast-track processing of certain requests for letter rulings under the jurisdiction of the Associate Chief Counsel (Corporate), replacing the pilot program described in Revenue Procedure 2022-10, 2022-6 I.R.B. 473.
Proposed regulations that would amend the definition of short-term, limited-duration insurance, which is excluded from the definition of individual health insurance coverage under the Public Health Service Act, and provide guidance as to the requirements for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group and individual health insurance markets. The proposed regulations would also clarify the tax treatment of certain benefit payments in fixed amounts received under employer-provided accident and health plans.
Revenue Ruling 2023-14, providing that, if a cash-method taxpayer receives cryptocurrency tokens as rewards for staking cryptocurrency native to a proof-of-stake blockchain, the fair market value of the rewards received should be included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the rewards.

August 14, 2023: The IRS released Tax Tip 2023-100, providing information to organizations applying for tax-exempt status, including that Form 1023 must now be submitted electronically, every tax-exempt organization needs an employer identification number, certain churches and ancillary organizations do not need to apply to be tax-exempt, different rules may apply depending on whether the organization is a private foundation or a public charity and charitable organizations must make certain information available to the public.

August 15, 2023: The IRS published Revenue Ruling 2023-16, which sets forth the applicable federal rates for September 2023.

August 15, 2023: The IRS released Tax Tip 2023-101, informing taxpayers that, as part of their right to the finality of tax matters, they are entitled to know the maximum amount of time they have to challenge the IRS’s position on a matter, the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt, when the IRS has finished an audit, that the IRS generally has three years from the date taxpayers file their returns (with exceptions) to assess any additional tax for that tax year and that the IRS generally has 10 years from the assessment date to collect unpaid taxes.

August 15, 2023: The IRS reminded eligible contractors who build or substantially reconstruct qualified new energy-efficient homes that they might qualify for a tax credit of up to $5,000 per home under Code Section 45L. The credit amount depends on the type of home, the home’s energy efficiency and the date when someone buys or leases [...]

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Weekly IRS Roundup January 17 – January 20, 2023

by McDermott Will & Emery | Jan 23, 2023 | IRS Guidance, Tax Reform, Tax Refunds

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 17, 2023 – January 20, 2023.

January 17, 2023: The IRS released Internal Revenue Bulletin 2023-3, which highlights the following:

Notice 2023-10: This notice provides that calendar year 2022 will be a transition period for purposes of implementing the $600 reporting threshold for third-party settlement organizations. As a result, third-party organizations will not be required to report tax year 2022 transactions on Form 1099-K to the IRS or the payee for the lower $600 threshold amount unless the amount exceeds $20,000 and the number of transactions exceeds 200.

Notice 2023-2: This notice provides interim guidance on the new 1% excise tax on a covered corporation’s repurchases of corporate stock under Section 4501. Section 4501 was added as part of the Inflation Reduction Act of 2022 (IRA). The notice provides an exclusive list of Section 317(b) redemption transactions that are treated as Section 317(b) redemption but are not repurchases, as well as an exclusive list of economically similar transactions. The notice applies to stock repurchases and issuances of stock made after December 31, 2022.

Announcement 2023-1: This announcement notifies taxpayers of the applicable reference standard that must be used to determine the amount of the energy-efficient commercial building property deduction allowed under Section 179D, as amended by the IRA. This announcement identifies the existing reference standard, affirms a new one and clarifies when the two reference standards will apply.

Notice 2023-1: This notice informs taxpayers that the IRS and the US Department of the Treasury (Treasury) intend to propose new clean vehicle credit regulations, addressing the definitions of certain terms in Section 30D.

Notice 2023-03: This notice provides the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. As of January 1, 2023, the standard mileage rates for the use of a car, van, pickup or panel truck are:
- 5 cents per mile driven for business use
- 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the armed forces
- 14 cents per mile driven in service of charitable organizations

Notice 2023-7: This notice announces that the IRS and the Treasury plan to issue guidance on the new corporate alternative minimum tax (CAMT), which imposes a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022. It also clarifies which corporations the CAMT applies to and how the alternative minimum tax is calculated.

Notice 2023-9: This notice informs taxpayers that the Treasury and the IRS have reviewed the incremental cost for all street vehicles in calendar year 2023 and the analysis shows [...]

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The New Base Erosion Minimum Tax

by David G. Noren, Jonathan D. Lockhart and Lowell D. Yoder | Jan 19, 2018 | Tax Reform, Uncategorized

The recently enacted 2017 tax reform act imposes a new “base erosion and anti-abuse tax” (BEAT) on large corporations. The BEAT operates as a limited-scope alternative minimum tax, applied by adding back to taxable income certain deductible payments made to related foreign persons. Although positioned as an anti-abuse rule, the BEAT presents challenges for a wide range of common business structures employed by both non-US-based and US-based multinationals.