On September 10, 2018, the IRS Large Business and International Division (LB&I) identified five new audit campaigns that expand the focus areas under its issue-based examination program.

Audit campaign summary:

IRC Section 199

There is expected to be an increase in audits to ensure compliance for business entities that file Domestic Production Activity Deduction (DPAD) claims under Section 199, especially given the fact that the Tax Cuts and Jobs Act repealed the DPAD for tax years beginning after December 31, 2017.

Syndicated conservation easement transactions

The IRS audits will focus on:

• Verifying easement contributions meet legal requirements for deductions,
• Determining whether fair market values are accurate, and
• Confirming contributions are listed transactions (requires disclosure statements by both investors and material advisors).

Foreign base company sales income: manufacturing branch rules

An increase in audits of US shareholders of controlled foreign corporations will focus on underreporting of subpart F income.

1120F Interest expense/home office expense

Interest expense and home office deductions will be closely examined on Form 1120F returns (U.S. Income Tax Return of a Foreign Corporation).

Individuals employed by foreign governments & international organizations

The audit campaign will focus on tax compliance of individuals employed by foreign organizations. Such entities are not required to withhold federal income and social security taxes from their employees' compensation. The IRS believes this increases the likelihood of underreported income.