IRS LBI Division – Recent Developments and Trends

To address the loss of over 40% of its Revenue Agents over the past decade, in 2017 the IRS Large Business and International (LBI) Division embarked on an issue-focused approach to identify and address tax compliance problems. LBI Revenue Agents still conduct the traditional broad-based examinations in which many tax issues are examined but are moving toward focusing on certain tax issues, in which taxpayers having one or more of these issues on their tax return are selected for what the IRS calls “campaign treatment streams.”

Campaign Treatment Streams

The campaign treatment streams include:

  • Issue-based examinations
  • “Soft” letters
    • Asks taxpayer to state return position or amend return
      • Failure to respond could lead to an issue-focused examination
  • Practice units (subject matter experts) who provide IRS staff
    • Explanations of issue-related tax concepts
    • Assistance with specific examination issues
  • Outreach and education
  • Revising IRS forms

Although there are five treatment streams, a significant number of these campaigns involve issue-focused examinations. Unlike examinations in the past that were overseen by the Revenue Agent’s first-line manager, campaigns involving issue-focused examinations will be overseen by a designated issue manager who has particular expertise with the issue. Agents and managers assigned to campaigns are generally assigned to just one or possibly two campaigns to allow for increased expertise and knowledge sharing as well as consistency in case development, oversight and resolution.

What began as a relatively modest approach in 2017 with 13 compliance campaigns has broadened to encompass more than 50 active campaigns. These campaigns span a wide variety of corporate, partnership and individual tax issues. In its Fiscal Year 2020 guidance to its field compliance personnel, LBI leadership indicates that it will be placing significant compliance emphasis on syndicated conservation easements, micro-captive insurance and virtual currency.

Conservation Easements

The IRS focus on syndicated conservation easements has been particularly intense. In December 2016, the IRS issued Notice 2017-10, which designated certain syndicated conservation easements as listed transactions. Specifically, the Notice listed transactions where investors in pass-through entities receive promotional material offering the possibility of a charitable contribution deduction worth at least two and half times their investment. Beginning as an LBI compliance campaign in 2018, the IRS conservation easement compliance strategy has expanded to include compliance personnel from both the Small Business/Self Employed (SBSE) and Tax Exempt and Government Entity (TEGE) Divisions making it an IRS-wide effort. This enhanced enforcement strategy was announced by IRS in a recent News Release stating that syndicated conservation easements are now a priority compliance area for the agency.

In addition to auditing syndicated conservation easement participants, the IRS is pursuing investigations of promoters, appraisers, tax return preparers and others, and can be expected to assert various penalties in some of these cases. At present, the IRS is evaluating numerous referrals of practitioners to the IRS Office of Professional Responsibility.

The IRS staffing of its enhanced compliance focuses on syndicated conservation easements now involves dozens of Revenue Agents, Engineers, Attorneys and Managers. This is likely the largest IRS staffing level for an issue-related compliance effort in the last 20 years.

Additional LBI campaign information is available here.

Learn More

To learn more about Bennett Thrasher’s Tax Controversy team, and for more guidance regarding these developments, please contact James Pickett by calling 770.396.2200.