The Internal Revenue Service (IRS) Announced Rollout of International Campaign Targeting Foreign Corporations

The IRS over recent years has shifted its focus from domestic audits to audits of foreign companies doing business within the U.S. as it was perceived this was an area of substantial non-compliance. This activity, conducted through various initiatives, specifically targeted foreign companies that should be filing Form 1120F. It is expected that information gleaned from these prior initiatives has become an important part of the IRS’s arsenal in developing comprehensive auditing procedures of foreign corporations.

Whether connected to these earlier audit initiatives or not, the IRS has announced, on January 31, 2017, its current campaign for auditing foreign companies doing business in the United States.

The Current Campaign – Is the IRS targeting Canadian Corporations?

Foreign companies doing business in the U.S. are often required to file Form 1120-F. The IRS has data suggesting that many of these companies are not meeting their filing obligations.

In this campaign, the IRS will use various external data sources to identify these foreign companies and encourage them to file their required returns. If the companies do not take appropriate action, the IRS has indicated that it will conduct examinations to determine the correct tax liability. The goal of this Campaign is to increase voluntary compliance by foreign corporations with a U.S. business nexus. The question after such an audit, is whether the IRS will exercise the penalty and interest provisions at their disposal.

Given this recent campaign and the IRS’s other compliance initiatives involving foreign corporations, Canadian companies with U.S. sales or other U.S. activities should speak to a member of MNP’s International Tax Services team to assess whether the U.S. activities create an 1120F filing obligation. If one exists, MNP can assess planning alternatives to mitigate potential U.S. federal tax liabilities.

For more information, contact Todd Jenkins, LLB, LLM (Tax), International Tax Specialist at 204.775.4531 or [email protected].