Doing business in the U.S.? The IRS state that they will increasing attention on midmarket firms.


An article in the August 2017 edition of the Canadian Tax Foundation’s Canadian Tax Focus (IRS Highlights Non-Compliance of Midmarket Firms, by Hekmat Kadaan of Richter LLP, Toronto) highlights comments from the IRS rolling out campaigns focusing below the “big fish” the IRS has historically targeted, including the following:

  • Related party transaction campaign – a redefined focus on midmarket entities to determine compliance with U.S. transfer pricing requirements.
  • Inbound distributor campaign – reviewing whether U.S. affiliates distributing imports from other countries are realizing adequate returns based on their assetsrisks assumed, and functions performed.
  • Form 1120-F non-filer campaign – targeting corporations (the IRS believes there are many) with a U.S. permanent establishment or branch which have not filed U.S. income tax returns. The IRS indicates external data sources will be used to identify these companies, commencing with a “soft letter outreach”. There is no indication of any amnesty, meaning penalties and interest are likely for Canadian corporations which have not complied with any U.S. filing obligations.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 433