LB&I Compliance Campaigns Captive Services Provider Offshore Private Banking Forms 5471

Published: Apr 17, 2019
Topics: Tax
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Three additional compliance campaigns were announced by the IRS Large Business and International Division on April 16, 2019. As noted in the announcement, the goal of LB&I is “to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” The new campaigns are as follows:

Captive Services Provider Campaign

The IRC Sec. 482 regulations and the OECD transfer pricing guidelines provide rules for determining arm’s length pricing for transactions between controlled entities, including transactions in which a foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group. The goal of this campaign is to ensure that U.S. multinational companies pay their captive service providers no more than arm’s length prices. Excessive pricing for these services inappropriately shift taxable income to these foreign entities.

Offshore Private Banking Campaign

U.S. persons are subject to tax on worldwide income from all sources, including income generated outside of the United States. While it is not illegal or improper for U.S. taxpayers to own offshore structures, accounts, or assets, taxpayers must comply with income tax and information reporting requirements associated with these offshore activities. The campaign addresses tax noncompliance and such information reporting.

Loose Filed Forms 5471

Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions. Some taxpayers are incorrectly filing Forms 5471 by sending the form to the IRS without attaching it to a tax return (or partnership or exempt organization return). The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.