International Tax Compliance Strategies: Key Programs and 2025 Updates

In 2025, international taxpayers must be proactive in managing their U.S. tax obligations. The IRS Large Business and International (LB&I) Division continues to evolve its approach, emphasizing pre-filing certainty and data-driven examinations. Understanding the core compliance and dispute resolution programs is crucial.

1. Pre-Filing Agreement (PFA) Program

The PFA Program allows certain large business and international taxpayers to resolve specific, often complex, tax issues before filing their return. This program enhances tax certainty and reduces the risk of post-filing audit disputes.

The IRS announced improvements to the PFA program in June 2025 (IR-2025-69), marking a renewed commitment to expanding access to this cooperative compliance strategy.

• Key Improvement: The IRS has provided a dedicated webpage listing Likely Suitable Issues and Documentation to help taxpayers determine if a PFA request is appropriate for their situation and what supporting documents are required.
• Source Link 1: IRS improves Pre-Filing Agreement tax certainty program for large business and international taxpayers 

Example 1: PFA - Resolve Pre-Filing.

A multinational corporation plans a complex intercompany transaction and seeks an advance agreement on the correct transfer pricing methodology. By submitting a PFA request, the company gets a binding determination on the issue before filing the tax return, significantly reducing audit risk for that specific issue.

2. LB&I Active Campaigns

The IRS continues to use Active Campaigns to focus its resources on areas of perceived non-compliance, particularly in the international space. These campaigns employ various "treatment streams," including examinations, educational letters, and outreach.

• Target Areas: International campaigns address issues in both inbound (foreign businesses with U.S. activities) and outbound (U.S. businesses with foreign activities) compliance.
• FATCA Compliance: A major focus remains the Foreign Account Tax Compliance Act (FATCA), particularly ensuring Foreign Financial Institutions (FFIs) meet their certification and reporting deadlines. The July 1, 2025, deadline for FATCA Responsible Officer certifications for the 2024 certification period is critical for avoiding status revocation.
  
  • Source Link 2: LB&I Active Campaigns 
  • Source Link 3: FATCA information for individuals
  • Source Link 4: Summary of FATCA reporting for U.S taxpayers

Example 2: FATCA - Report Offshore.

A U.S. individual living abroad has a balance in their foreign bank account exceeding the reporting threshold. To remain compliant, they must report the account information on FinCEN Form 114 (FBAR) and potentially Form 8938 (Statement of Specified Foreign Financial Assets) attached to their annual tax return.

3. Examination Process and IDR Response

The LB&I's Examination Process is outlined in Publication 5125, which describes an issue-based approach from initial contact to resolution. Collaboration and transparency are key expectations for both the examiner and the taxpayer.

• Timely IDR Response: The Information Document Request (IDR) process requires clear, concise requests from the IRS and timely, complete responses from the taxpayer. Best practices involve discussing the IDR with the exam team before issuance to agree on the scope and response date.
• Source Link 5: Publication 5125 (Rev. 9-2025) - Large Business & International Examination Process
• Source Link 6: LB&I Rolls Out Revised IDR Process

Example 3: IDR Response - Timely Docs.

During an international audit, the examiner issues an IDR requesting all documents supporting a foreign tax credit calculation. To maintain cooperation and avoid potential enforcement actions, the taxpayer's team must timely provide a complete response, including relevant transactional data and supporting treaties, within the agreed-upon timeframe.

4. Tax Gap and Enforcement Tools

The IRS is increasingly leveraging advanced data analytics and Artificial Intelligence (AI) triage to identify and prioritize international tax non-compliance, especially concerning high-income individuals and complex cross-border structures. While IRS Publication 5329 focuses on additional taxes on retirement plans, the spirit of using data-driven technology to target the Tax Gap (the difference between tax owed and tax paid) applies across all compliance areas.

• AI Triage: The use of AI helps the IRS focus its limited resources on returns and issues with the highest risk of non-compliance, making detailed, specific documentation more important than ever for all international taxpayers.
  
  
• Source Link 7: About Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts (Use of this publication is indicative of the need to consult specialized forms for specific tax situations.)

Example 4: Tax Gap - AI Triage.

An international individual files a return showing significant foreign source income but no corresponding tax paid and inconsistent reporting between their Form 8938 and FBAR. AI-powered risk analysis flags this discrepancy, immediately escalating the return for audit, demonstrating the effect of data-driven enforcement.

Maryna Pirska
Tax Preparer,
Manager 

Disclaimer: This information is based on current and projected IRS publications for 2025 and is for educational purposes only. Tax laws are complex and frequently change. Always consult with a qualified tax professional for advice specific to your business.