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International Individual Compliance

If you have a question regarding any of the following campaigns, please contact Eric Fox.

F3520/3520-A Non-Compliance and Campus Assessed Penalties

  • Rollout: May 21, 2018
  • LB&I summary: This campaign will take a multifaceted approach to improving compliance with respect to the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts. The Service 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. 
  • Relevant LB&I Practice Units: “Failure to File the Form 3520/3520-A – Penalties” (November 23, 2015).

Foreign Earned Income Exclusion

Individuals Employed by Foreign Governments & International Organizations 

  • Rollout: September 10, 2018 
  • LB&I Summary: 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 Internal Revenue Service. 
  • 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.  

Individual Foreign Tax Credit (Form 1116)

Individual Foreign Tax Credit Phase II

  • Rollout: October 30, 2018
  • LB&I summary: Section 901 of the Internal Revenue Code 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.

Nonresident Alien Schedule A and Other Deductions

  • Rollout: May 21, 2018
  • LB&I summary: This campaign is intended to increase compliance in the proper deduction of eligible expenses by nonresident alien (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.
  • Relevant LB&I Practice Units: “Allocation and Apportionment of Deductions for Nonresident Alien Individuals” (March 9, 2016)

Nonresident Alien Tax Treaty Exemptions

  • Rollout: May 21, 2018
  • LB&I summary: 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.
  • Relevant LB&I Practice Units: “Determining an Individual’s Residency for Treaty Purposes” (September 6, 2018).

Nonresident Alien Tax Credits

  • Rollout: May 21, 2018
  • LB&I summary: This campaign is intended to increase compliance in nonresident alien individual (NRA) 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.
  • Relevant LB&I Practice Units: “U.S. Persons Residing Abroad Claiming Additional Child Tax Credit” (December 7, 2017).

Offshore Private Banking Campaign 

  • Rollout: April 16, 2019 
  • LB&I Summary: 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. 

OVDP Declines-Withdrawals

  • Rollout: January 31, 2018
  • LB&I summary: The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance 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 non-compliance 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.
  • IP&B comment: LB&I has state that this campaign will focus on taxpayers with unreported offshore income, and not taxpayers who have unfiled information returns but paid all tax due on their income from offshore assets.

Swiss Bank Program

  • Rollout: November 3, 2017
  • LB&I summary: 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.

Offshore Service Providers

  • Rollout: October 30, 2018
  • LB&I summary: 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.
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