The U.S. Internal Revenue Service (IRS) Large Business and International Division’s (LB&I) latest compliance campaigns suggest that the IRS views global mobility programs as “low hanging fruit” ripe for increased scrutiny and examination.

IRS Continues to Focus on Global Mobility Programs with Its Newest Compliance Campaigns

Mobility MattersSeptember 2019 | by John T. Seery, KPMG LLP’s Washington National Tax1 practice, Washington, D.C. (KPMG LLP in the United States is a KPMG International member firm)

The IRS LB&I recently announced six new compliance campaigns, five of which focus on individual income tax issues.2 These five compliance campaigns, like the majority of the previously-announced individual-focused compliance campaigns, deal with issues more common to globally-mobile employees than the average U.S. taxpayer, suggesting that the IRS views global mobility issues as presenting compliance risks and potentially signaling increased or more-focused examinations into the tax returns of globally-mobile employees and the payrolls of their employers.

This article will provide background on the LB&I campaign initiative, an overview of the 25 compliance campaigns that focus on individual income tax issues, the official actions the IRS has taken to date on these campaigns, and what these campaigns may mean for global mobility programs.

BackgroundThe compliance campaign initiative is part of a larger reorganization effort, first announced in September 2015, to move LB&I towards issue-based examinations with the goal of improving return selection, identifying issues representing a risk of noncompliance, and making the greatest use of limited resources.3 LB&I identifies and selects issues that present potential compliance risks and require a response in the form of one or multiple treatment streams to achieve compliance objectives through a combination of data analysis, suggestions from IRS compliance employees, and feedback from the tax community.4 These treatment streams include issue-based examinations, “soft letters” encouraging voluntary self-correction, and stakeholder outreach.

In the majority of these campaigns, LB&I has identified issue-based examinations as one of the treatment streams it plans to deploy in order to achieve its compliance objectives. Although not required, LB&I executives have stated that the IRS will, if asked, confirm whether an inquiry relates to a compliance campaign.5 It may be to a taxpayer’s benefit to ask whether an inquiry is campaign-related, because if it is, revenue agents are generally confined to that issue and a taxpayer may be able to limit the time the agents have to perform the examination. However, campaign issues may also come up as part of a traditional examination, and a taxpayer may be subject to multiple campaigns simultaneously. It is therefore recommended that taxpayers contact their tax service providers if they receive an IRS notice.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

1Mobility Matters

Individual-Focused Compliance CampaignsOf the 59 compliance campaigns that have been announced to date,6 25 focus on individual income tax issues. These announcements have resulted in limited official action, and at the moment the IRS appears to be favoring “soft letters” over examinations in order to encourage compliance. However, while there has not necessarily been an observable increase in issue-based examinations, there are certain campaigns where KPMG LLP (U.S.) has observed increased scrutiny and sophistication from the IRS, particularly around the foreign earned income exclusion (FEIE) and certain international information reporting requirements. The section that follows reproduces LB&I’s announced explanation and planned treatment streams,7 and provides insights on any IRS actions taken, for each of these individual-focused campaigns.

U.S. Citizens and U.S. Residents with Offshore Activities

Foreign Earned Income Exclusion

The FEIE is an area that the IRS had previously identified as being of strategic importance, and prior to the campaign initiative, LB&I developed training resources designed to educate its agents on various aspects of the FEIE and improve their ability to identify potential issues with a taxpayer’s FEIE claim. LB&I’s spotlight on the FEIE is evident in recent IRS payroll audit activity. KPMG has reviewed IRS Information Document Requests (IDRs) that are designed to verify whether compensation and benefits provided to employees who are U.S. citizens or resident aliens that work outside the United States are being properly treated for employment tax purposes, and whether federal income taxes were withheld correctly. These IDRs are requesting information and documentation to substantiate claims of bona fide residency, the establishment of a tax home in a foreign country, and an employee’s presence in the United States.

Given the resources LB&I has invested in training its agents on the FEIE and the division selecting the FEIE in its campaign initiative, it seems likely that these targeted inquiries will become more commonplace, underscoring the need for global mobility programs to enhance their visibility of employees’ travel and activities. Employers with formalized assignment policies will likely find themselves better equipped to navigate a potential FEIE issue-based examination (or other compliance campaign-related examination), and although not required, it continues to be a best practice for payroll administrators to collect Form 673,

Statement of Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911 from U.S. citizen employees on outbound assignments in order to document and substantiate the FEIE withholding exemption.

Foreign Earned Income Exclusion Campaign (November 3, 2017)

Individuals who meet certain requirements may qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction. This campaign addresses taxpayers who have claimed these benefits but do not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.

Subsequent Actions: On April 5, 2019, the IRS publicly released a Practice Unit titled “Tax Home for Purposes of IRC section 911.”8 Practice Units serve as job aids to IRS examiners, and are meant to improve the skills of IRS agents throughout LB&I on select topics. The IRS has been publishing Practice Units as far back as December 2014.

.

KPMG Observation: Although LB&I did not formally identify and select the FEIE as a compliance campaign until November 3, 2017, the IRS had previously identified the exclusion as an area of strategic importance through the publication of eight discrete Practice Units on the topic.9 Since the publication of these Practice Units and the campaign announcement, KPMG has observed an increase in the number of IRS audits focusing on taxpayers’ bona fide resident status and whether a tax home has been established in a foreign country, and more targeted information requests to substantiate physical presence outside the United States.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

2Mobility Matters

Foreign Tax Credits

Individual Foreign Tax Credit (Form 1116) (November 3, 2017)

Individuals file Form 1116 to claim a credit that reduces their U.S. income tax liability for the amount of foreign taxes paid on foreign source income. This campaign addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116. Due to the complexity of computing the foreign tax credit and challenges associated with third-party reporting information, some taxpayers face the risk of claiming an incorrect foreign tax credit amount. The IRS will address noncompliance through a variety of treatment streams, including examinations.

Individual Foreign Tax Credit Phase II (October 30, 2018)

Section 901 of the Internal Revenue Code [IRC] alleviates double taxation through a dollar-for-dollar credit against U.S. tax on foreign-sourced income in the amount of foreign taxes paid on that income.

Individuals who meet certain requirements may qualify for the foreign tax credit. This campaign addresses taxpayers who have claimed the credit but do not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.

International Information Reporting Requirements

A top priority of the IRS is stopping offshore tax noncompliance and evasion,10 and there have been a number of recent, high-profile enforcement actions taken against individuals who failed to disclose foreign financial assets. It is therefore not surprising that LB&I has identified a number of international information reporting requirements in this campaign initiative.

The IRS receives information from a number of “data-rich resources” that it is able to leverage using enhanced data analytics to detect potential noncompliance.11 Given the resources the IRS has at its disposal, and its recent indication that it believes there is increased awareness among individuals of their offshore tax and reporting obligations,12 the inclusion of offshore private banking and other international information reporting requirements in the compliance campaign initiative may foreshadow increased enforcement actions against individual taxpayers.

Although globally-mobile employees are not necessarily the intended target of the Foreign Account Tax Compliance Act (FATCA) or the Bank Secrecy Act (Report of Foreign Bank and Financial Accounts (FBAR)), they often find themselves unwittingly caught in the crosshairs of these foreign financial asset disclosure laws. The penalties for failing to comply with these requirements are severe, so it is

imperative for global mobility program managers and tax service providers to foster compliance through effective communication with assignees, and to work quickly to bring assignees who have failed to report certain foreign financial assets into compliance through the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures, or the Delinquent International Information Return Submission Procedures.

OVDP Declines-Withdrawals Campaign (January 31, 2017)

The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past noncompliance related to unreported offshore income and failure to file foreign information returns. This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. Taxpayers, who have yet to resolve their noncompliance and who meet the eligibility criteria, are encouraged to consider entering one of the offshore programs currently available. The IRS will address continued noncompliance through a variety of treatment streams, including examination and letters.

Swiss Bank Program Campaign (November 3, 2017)

In 2013, the U.S. Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities. Banks that are participating in this program provide information on the U.S. persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations and letters.

KPMG Observation: A sample of the letter a taxpayer might receive as part of this program is available on the IRS website.14 KPMG is aware of some instances where taxpayers who are nonresident aliens with social security numbers received a letter as a result of this compliance campaign.14 If a taxpayer fails to respond to this letter, the taxpayer’s tax returns may be referred for examination and the IRS may assess applicable penalties.

KPMG Observation: The IRS ended the OVDP on September 28, 2018.13 The ending of the OVDP does not affect the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures, and/or the Delinquent International Information Return Submission Procedures. Taxpayers who previously failed to report certain financial assets and/or pay all tax due related to those assets may be eligible to come into compliance through these other programs.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

3Mobility Matters

F3520/3520-A Noncompliance and Campus Assessed Penalties (May 21, 2018)

This campaign will take a multi-faceted approach to improving compliance with respect to the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts. The [IRS] will address noncompliance through a variety of treatment streams including, but not limited to, examinations and penalties assessed by the campus when the forms are received late or are incomplete.

Loose Filed Forms 5471 (April 16, 2019)

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, if applicable).

If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. 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.

Offshore Private Banking Campaign (April 16, 2019)

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

The IRS is in possession of records that identify taxpayers with transactions or accounts at offshore private banks. This campaign addresses tax noncompliance and the information reporting associated with these offshore accounts. The IRS will initially address tax noncompliance through the examination and soft letter treatment streams. Additional treatment streams may be developed based on feedback received throughout the campaign.

KPMG Observation: The IRS had previously identified the failure to file Form 5471 as an area of strategic importance through the publication of three Practice Units.16

KPMG Observation: The 2019 filing season was the first since this campaign was announced,15 and KPMG member firms have reported an increase in notices, suggesting the IRS is more closely scrutinizing these information returns compared to prior filing seasons.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

4Mobility Matters

Post-OVDP Compliance (July 19, 2019)

U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former OVDP taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.

Other

Expatriation (July 19, 2019)

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. The [IRS] will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

Subsequent Actions: On September 6, 2019, the IRS announced the Relief Procedures for Certain Former Citizens. The new procedures will enable certain expatriated individuals to come into compliance with their U.S. tax and filing obligations and receive relief for unpaid U.S. taxes and penalties.17

High-Income Non-filer (July 19, 2019)

U.S. citizens and resident aliens are subject to tax on worldwide income. This is true whether or not taxpayers receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return), or its foreign equivalents. Through an examination treatment stream, this campaign will concentrate on bringing into compliance those taxpayers who have not filed tax returns.

U.S. Territories—Erroneous Refundable Credits (July 19, 2019)

Some bona fide residents of U.S. territories are erroneously claiming refundable tax credits on Form 1040, U.S. Individual Income Tax Return. This campaign will address noncompliance through a variety of treatment streams, including outreach and traditional examinations.

KPMG Observation: The penalties for failing to comply with income tax and information reporting requirements associated with offshore activities are severe, and with the information the IRS receives under FATCA, the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting, and other information resources, the IRS is better equipped than ever to detect offshore tax noncompliance.

KPMG Observation: Although OVDP ended on September 28, 2018, taxpayers who previously failed to report certain foreign financial assets and/or pay all tax due related to those assets, as noted earlier, may be eligible to come into compliance through the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures, and/or the Delinquent International Information Return Submission Procedures.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

5Mobility Matters

Withholding and Reporting

Payroll Issues

Forms 1042/1042-S Compliance (May 21, 2018)

Taxpayers who make payments of certain U.S.-source income to foreign persons must comply with the related withholding, deposit, and reporting requirements. This campaign addresses withholding agents who make such payments but do not meet all their compliance duties. The [IRS] will address noncompliance and errors through a variety of treatment streams, including examination.

Verification of Form 1042-S Credit Claimed on Form 1040NR (November 3, 2017)

This campaign is intended to [help] ensure that the amount of withholding credits or refund/credit elect claimed on Forms 1040NR, U.S. Nonresident Alien Tax Return, is verified and that the taxpayer has properly reported the income reflected on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Before a refund is issued or credit allowed, the IRS verifies the withholding credits reported on the Form 1042-S. The campaign will address noncompliance through a variety of treatment streams, including but not limited to examinations.

Nonresident Alien Tax Treaty Exemptions (May 21, 2018)

This campaign is intended to increase compliance in nonresident alien (NRA) individual tax treaty exemption claims related to both effectively-connected income and fixed, determinable, annual, periodical income. Some NRA taxpayers may either misunderstand or misinterpret applicable treaty articles, provide incorrect or incomplete forms to the withholding agents, or rely on incorrect information returns provided by U.S. payors to improperly claim treaty benefits, and exempt U.S. source income from taxation. This campaign will address noncompliance through a variety of treatment streams, including outreach/education and traditional examinations.

KPMG Observation: The 2019 filing season was the first since this campaign was announced, and anecdotal evidence suggests that the IRS is more closely scrutinizing Form 1040NRs with tax treaty exemption claims.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

6Mobility Matters

Individuals Employed by Foreign Governments & International Organizations (September 10, 2018)

In some cases, individuals working at foreign embassies, foreign consular offices, and various international organizations may not be reporting compensation or may be reporting it incorrectly. Foreign embassies, foreign consular offices, and international organizations operating in the U.S. are not required to withhold federal income and social security taxes from their employees’ compensation nor are they required to file information reports with the [IRS].

This lack of withholding and reporting results in unreported income, erroneous deductions and credits, and failure to pay income and Social Security taxes. Because this is a fluid population, there may be a lack of knowledge regarding tax obligations. This campaign will focus on outreach and education by partnering with the Department of State’s Office of Foreign Missions to inform employees of foreign embassies, consular offices, and international organizations. The IRS will also address noncompliance in this area by issuing soft letters and conducting examinations.

Nonresident Aliens with U.S. Activities

Deductions and Credits

Nonresident Alien Schedule A and Other Deductions (May 21, 2018)

This campaign is intended to increase compliance in the proper deduction of eligible expenses by [NRA] individuals on Form 1040NR Schedule A. NRA taxpayers may either misunderstand or misinterpret the rules for allowable deductions under the previous and new Internal Revenue Code provisions, do not meet all the qualifications for claiming the deduction, and/or do not maintain proper records to substantiate the expenses claimed. The campaign will address noncompliance through a variety of treatment streams, including outreach/education and traditional examinations.

NRA Tax Credits (May 21, 2018)

This campaign is intended to increase compliance in [NRA] individual tax credits. NRAs who either have no qualifying earned income, do not provide substantiation/proper documentation, or do not have qualifying dependents may erroneously claim certain dependent-related tax credits. In addition, some NRA taxpayers may also claim education credits (which are only available to U.S. persons) by improperly filing Form 1040 tax returns. This campaign will address noncompliance through a variety of treatment streams, including outreach/education and traditional examinations.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

7Mobility Matters

this campaign include issue-based examinations, soft letters encouraging voluntary self-correction, and stakeholder outreach.

Sale of Partnership Interest (March 13, 2018)

Generally, the sale of a partnership interest results in capital gain or loss. If the partner held the interest for more than one year, the long-term capital gain tax rate is usually 15 percent. If the partnership depreciated real property or has appreciated collectibles at the time of the sale or exchange, higher capital gain rates may apply. If the partnership has inventory items or unrealized receivables at the time of the sale or exchange, a portion of the gain or loss will be ordinary gain or loss.

This campaign will address taxpayers who do not report the sale or do not report the gain or loss correctly. Incorrect reporting may include the gain or loss amount or reporting the entire gain as long-term capital gain (usually 15 percent). Often, a portion of the gain is ordinary gain or taxed at the 25 percent or 28 percent long-term capital gain rates.

A variety of treatment streams will address taxpayer noncompliance, including examinations. When appropriate, the [IRS] will issue soft letters. Additional treatment streams include practitioner and taxpayer outreach, tax software vendor outreach, and tax form and publication change suggestions.

Other Financial Transactions

Structured Financial Transactions, Virtual Currency, and Offshore Service Providers

Basket Transaction Campaign (January 31, 2017)

This campaign addresses structured financial transactions described in [IRS] Notices 2015-73 and 74, in which a taxpayer attempts to defer and treat ordinary income and short-term capital gain as long-term capital gain. The taxpayer treats the option or other derivative as open until a “barrier event” occurs, and, therefore, does not recognize or report current period gains. The gains are deferred until the contract terminates, at which time the overall net gain is reported as a long-term capital gain. LB&I has developed a training strategy for this campaign. The treatment streams for this campaign will be issue-based examinations, soft letters to Material Advisors, and practitioner outreach.

Subsequent Actions: On the same day the Basket Transactions Campaign was announced, the IRS publicly released a Practice Unit titled “Basket Transactions.”19

Compensation and Benefits

Deferred Compensation

Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009 (July 19, 2019)

This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009. In general, [IRC] section 457A requires that any compensation deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. The campaign objective is to verify taxpayer compliance with the requirements of IRC section 457A through issue-based examinations.

Partners, Partnerships, and Other Pass-throughs

SECA, Partnerships That Stop Filing, Issues with Reporting Sales/Gain or Loss

SECA Tax (March 13, 2018)

Partners report income passed through from their partnerships. Unless an individual partner qualifies as a “limited partner” for self-employment tax purposes, the partner’s distributive share is subject to self-employment tax under the Self-Employment Contributions Act (SECA). Some individual partners, including service partners in service partnerships organized as state-law limited liability partnerships, limited partnerships, and limited liability companies, have inappropriately claimed to qualify as “limited partners” not subject to SECA tax.

Subsequent Actions: The IRS publicly released a Practice Unit titled “Self-Employment Tax and Partners” on February 26, 2019.18

Partnership Stop Filer (March 13, 2018)

Partners report income, losses, and other items passed through from their partnership. Some partnerships stop filing tax returns for various reasons yet still have economic transactions that are not being reported to their partners. That activity is likely not being reported by the partners. The treatment streams for

KPMG Observation: KPMG has observed an increase in IRS activity related to the SECA tax campaign. Specifically, several taxpayers have received various forms of communication from the IRS indicating that the examiners are initiating requests for information related to whether partners have subjected their distributive share of income from a partnership to self-employment tax under IRC section 1402.

KPMG Observation: A sample of the letter a taxpayer might receive as part of this program is available on the IRS website.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

8Mobility Matters

Virtual Currency (July 2, 2018)

U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams, including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax noncompliance involving virtual currency.

Subsequent Actions: On July 26, 2019, the U.S. IRS announced that it has begun sending letters to virtual currency owners advising them to pay back taxes and file amended returns.20

Offshore Service Providers (October 30, 2018)

The focus of this campaign is to address U.S. taxpayers who engaged offshore service providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets, generally, for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.

Compliance Campaigns and Global Mobility ProgramsThese compliance campaigns reinforce what has been clear since LB&I began developing and publishing Practice Units: the IRS views global mobility programs as potential compliance risks. Yet nearly three years into this campaign initiative it remains unclear how and when global mobility programs will encounter these campaigns. The selected campaigns and areas that LB&I has invested educational resources into may indicate that the IRS will be taking a closer look at global mobility programs in the near future. While there has not yet been a notable increase in IRS audit activity, there is growing evidence that the IRS is taking aim at cross-border issues and becoming more sophisticated in identifying potential noncompliance within assignee populations. The campaign initiative highlights the growing importance of the relationship between global mobility programs and their tax service providers, and the need for the two to work hand-in-hand so that they are compliant and following best practices.

KPMG Observation: Virtual currency transactions are not just a concern of the United States. Countries around the world are increasingly focused on making sure these transactions do not escape taxation. For example, tax authorities in the United Kingdom and Israel have taken steps similar to the United States, addressing noncompliance through outreach and increased enforcement actions against virtual currency traders,21 while Japan is planning a new reporting system to gather data on virtual currency transactions in an effort to combat tax evasion.22

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

9Mobility Matters

End notes1 John T. Seery is a manager in the Global Mobility Services group of KPMG’s Washington National Tax (WNT) practice. The author would like to thank Michael P. Dolan, national director of IRS policies and dispute resolution in WNT’s Practice, Procedure, and Administration group and a former IRS Deputy Commissioner and Acting Commissioner, for his insights into the history of the LB&I compliance campaign initiative.

2 The IRS Large Business and International division (LB&I) announces the approval of six additional compliance campaigns (Jul. 19, 2019), available at https://www.irs.gov/businesses/corporations/the-irs-large-business-and-international-division-lbi-announces-the-approval-of-six-additional-compliance-campaigns.

3 IRS Announces Initial Rollout of Campaign (Jan. 31, 2017), available at https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns.

4 IRS Announces Initial Rollout of Campaign (Jan. 31, 2017), available at https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns.

5 Timothy J. McCormally & Lawrence E. Mack, “‘Needs Must’: IRS Launches Compliance Campaigns For Large Corporation Examinations,” Daily Tax Report (BNA), DTR Issue No. 70 (Apr. 13, 2017) available at https://www.bloomberglaw.com/product/tax/document/X7LSIJV0000000

6 Full List of Large Business and International Active Campaigns (last updated: July 23, 2019), available at https://www.irs.gov/businesses/full-list-of-lb-large-business-and-international-campaigns.

7 IRS Announces Initial Rollout of Campaign (Jan. 31, 2017), available at https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns; IRS Announces Rollout of 11 Large Business and International Compliance Campaigns (Nov. 3, 2017), available at https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns-0; IRS Announces Rollout of Five Large Business and International Compliance Campaigns (Mar. 13, 2018), available at https://www.irs.gov/businesses/irs-announces-rollout-of-five-large-business-and-international-compliance-campaigns; IRS Announces the Identification and Selection of Six Large Business and International Compliance Campaigns (May 21, 2018), available at https://www.irs.gov/businesses/irs-announces-the-identification-and-selection-of-six-large-business-and-international-compliance-campaigns; IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns (Sept. 10, 2018), available at https://www.irs.gov/businesses/irs-announces-the-identification-and-selection-of-five-large-business-and-international-compliance-campaigns-0; IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns (Oct. 30, 2018), available at https://www.irs.gov/businesses/irs-announces-the-identification-and-selection-of-five-large-business-and-international-compliance-campaigns-1; The IRS Large Business and International Division (LB&I) Has Announced the Approval of Three Additional Compliance Campaigns (Apr. 16, 2019), available at https://www.irs.gov/businesses/corporations/irs-announces-the-identification-and-selection-of-three-large-business-and-international-compliance-campaigns; IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns (Jul. 2, 2018), available at https://www.irs.gov/businesses/irs-announces-the-identification-and-selection-of-five-large-business-and-international-compliance-campaigns; The IRS Large Business and International Division (LB&I) Announces the Approval of Six Additional Compliance Campaigns (Jul. 19, 2019), available at https://www.irs.gov/businesses/corporations/the-irs-large-business-and-international-division-lbi-announces-the-approval-of-six-additional-compliance-campaigns.

8 Read text of the practice unit on the IRS practice unit webpage with a posting date of April 5, 2019.

9 Physical Presence Test for Purposes of Qualifying for IRC 911 Tax Benefits (Apr. 24, 2017); Calculating Foreign Earned Income

Exclusion—Partner in a Partnership with Foreign Earned Income (Aug. 19, 2016); Foreign Housing Deduction (IRC § 911) (Aug. 19, 2016); Foreign Housing Exclusion (IRC § 911) (Jul. 8, 2016); Bona Fide Residence Test for Purposes of Qualifying for IRC § 911 Tax Benefits (Aug. 21, 2015); Calculating Foreign Earned Income Exclusion -Self-Employed Individual (Aug. 21, 2015); Calculating Foreign Earned Income Exclusion -Employee (Aug. 21, 2015); IRC 911 Election and Revocation (Dec. 15, 2014).

10 Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 4 (Last updated: Sept. 26, 2018), available at https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers.

11 Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 4 (Last updated: Sept. 26, 2018), available at https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers.

12 Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 2 (Last updated: Sept. 26, 2018), available at https://www.irs.gov/individuals/international-taxpayers/closing-the-2014-offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers.

13 IR-2018-52: “IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now.” Also, see KPMG’s GMS Flash Alert 2018-051 for details.

14 The sample letter is dated December 2017 and references the Offshore Voluntary Disclosure Program (OVDP) as a reply option. The IRS ended the OVDP in September 2018, so this no longer a reply option. Presumably the IRS is sending an updated letter to taxpayers, but the sample letter available online has not yet been updated.

15 LB&I previously identified Form 3520/3520-A noncompliance as an area of strategic importance in 2015 when it published a Practice Unit on the topic: Failure to File the Form 3520/3520-A—Penalties (Nov. 23, 2015).

16 Failure to File the Form 5471—Category 2 and 3 Filers—Monetary Penalty (Oct. 10, 2017); Failure to File the Form 5471—Category 4 and 5 Filers—Monetary Penalty (Nov. 12, 2015); Monetary Penalties for Failure to Timely File a Substantially Complete Form 5471—Category 4 & 5 Filers (Oct. 22, 2015).

17 IR-2019-151: “IRS announces new procedures to enable certain expatriated individuals a way to come into compliance with their U.S. tax and filing obligations.”

18 Read text of the practice unit on the IRS practice unit webpage with a posting date of February 26, 2019.

19 Read text of the practice unit on the IRS practice unit webpage with a posting date of January 31, 2017.

20 See IR-2019-132, July 26, 2019.

21 Hamza Ali, “You Didn’t Pay U.K. Tax on Big Crypto Gains—Own Up to It,” Bloomberg Law: Tax (Aug. 14, 2019), available at https://news.bloombergtax.com/daily-tax-report-international/you-didnt-pay-u-k-tax-on-big-crypto-gains-own-up-to-it; Guy Katz, “Bitcoin not considered ‘currency’ for capital gains tax purposes—district court rules,” IBFD Tax News Services (May 22, 2019), available at

https://research.ibfd.org/#/doc?url=/data/tns/docs/html/tns_2019-05-22_il_1.html.

22 Takahiko Wada, “Japan to lead development of SWIFT network for cryptocurrency: source,” Reuters (Jul. 17, 2019), available at https://www.reuters.com/article/us-japan-cryptocurrency/japan-to-lead-development-of-swift-network-for-cryptocurrency-source-idUSKCN1UD06U.

Please note that the provision of hyper-links and URLs for 3rd-party (non-governmental, non-KPMG) websites, does not represent an endorsement of these websites by KPMG.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

10Mobility Matters

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836

11Mobility Matters

kpmg.com/socialmedia

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

To learn more about KPMG’s Global Mobility Services practice, visit us at: www.kpmg.com/GMS

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the author or authors only, and does not necessarily represent the views or professional advice of KPMG LLP.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 892836