Holland & Knight Alert: Offshore Lenders Targeted by IRS Audit Campaign (August 25, 2021)

Alan Winston Granwell, Katie Erin Gerber, Abbey Benjamin Garber, and William M. Sharp of Holland & Knight LLP, have made available for download their article, “Offshore Lenders Targeted by IRS Audit Campaign” published as a Holland & Knight Alert. The article begins as follows:

Since 2017, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) has shifted its audit efforts to issue-based examinations, premised on strategically identified and prioritized areas of compliance risks to address taxpayer compliance. LB&I’s goal has been to improve return selection, identify issues with significant compliance risks and make the best use of its limited resources.

On June 10, 2021, the IRS announced a new campaign that focuses on the U.S. activities of financial service entities.1 The campaign addresses the issue of whether foreign investors participating in “inbound” lending transactions were engaged in a U.S. trade or business and generated income effectively connected with a U.S.-situs lending trade or business. The description of the IRS campaign notes that under the U.S. Internal Revenue Code, foreign investors who only trade stocks and securities for their own account are not treated as being engaged in a U.S. trade or business under a safe harbor.2 However, that safe harbor is unavailable to dealers in stocks or securities, to entities engaged in a lending business or to foreign investors in partnerships engaged in such activities.

To view and download the article, click here: “Offshore Lenders Targeted by IRS Audit Campaign”.

Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.

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