An IRS official speaking at the District of Columbia Bar Association’s Tax Section regular meeting on 18 December 2003 stated that the Service is looking at Form 1120F filings (foreign corporation income tax returns) and Form 8833 filings (claims of application of an income tax treaty). The official, Elvin D. Hedgpeth, is with the Large and Midsize Business Division, so I’m not sure what the trickle-down effect will be on smaller corporations. (I see these frequently used in real estate projects).
The avowed reason for looking at these returns is to see whether foreign corporations are abusing income tax treaties by claiming of exemption from U.S. tax, or are claiming they are not “engaged in business” in the U.S.
What are the long-term implications? Hard to say, except that we’re seeing a slow tightening of the screws in the tax compliance environment in international transactions. This is just another example.