The IRS has recently noted that they are rolling out campaigns to focus on entities below the “big fish” that have historically been targeted. Such campaigns include:
Related party transaction campaign – a redefined focus on mid-market entities to determine compliance with U.S. transfer pricing requirements.
Inbound distributor campaign – reviewing whether U.S. affiliates distributing imports from other countries are realizing adequate returns based on their assets, risks assumed, and functions performed.
Form 1120-F non-filer campaign – targeting corporations (the IRS believes there are many) with a U.S. permanent establishment or branch which have not filed U.S. income tax returns. The IRS indicates external data sources will be used to identify these companies, commencing with a “soft letter outreach”. There is no indication of any amnesty, meaning penalties and interest are likely for Canadian corporations which have not complied with any U.S. filing obligations.
Action Item: If operating as a mid-market business in the U.S., be prepared for the possibility of more scrutiny from the IRS.