What is the IRS?
The Internal Revenue Service (IRS) is the bureau of the U.S. Department of the Treasury responsible for administering and enforcing the Internal Revenue Code. The IRS collects federal income, employment and excise taxes; processes returns; conducts audits and examinations; and issues guidance (Revenue Rulings, Revenue Procedures, Notices and Private Letter Rulings) interpreting U.S. tax law.
Who deals with the IRS?
U.S. citizens, U.S. tax residents, U.S. domestic entities, and foreign persons with U.S.-source income or a U.S. trade or business all interact with the IRS. Non-U.S. companies are most commonly exposed through withholding tax obligations on payments to U.S. recipients, FATCA reporting, IRS Form W-8 documentation, and treaty-benefit claims under bilateral income-tax treaties.
Key filings and identifiers
Common IRS interactions include obtaining an EIN (employer identification number) for a U.S. entity or withholding agent, an ITIN for foreign individuals not eligible for an SSN, filing Form 1040/1120/1065 income-tax returns, Form 1042/1042-S for withholding on non-U.S. persons, and FATCA Form 8966 for foreign financial institutions.
Enforcement powers
The IRS conducts examinations (audits), proposes adjustments via Notices of Deficiency, assesses penalties and interest, and can pursue collection through liens, levies and offsets. Disputes are resolved through IRS Appeals or litigation in the U.S. Tax Court, federal district courts or the Court of Federal Claims.
Why the IRS matters for cross-border deals
Cross-border M&A, financing and tech transactions routinely require IRS analysis: check-the-box entity classification, FIRPTA on U.S. real-estate gains, Subpart F and GILTI for U.S. shareholders of CFCs, and withholding mechanics for royalties, dividends and interest paid to non-U.S. recipients.
Additional Filings for Foreign-Linked Structures
- Federal corporate income tax: Form 1120 for US corporations (such as Delaware or Wyoming entities); Form 1120-F for foreign entities with US-connected income; Form 1065 or Form 1120 for LLCs, depending on the tax classification election.
- Federal employment tax: Form 941 and Form 940 for US employees.
- Information returns: Form 5471 for interests in foreign controlled corporations; Form 5472 for US entities with foreign shareholders; Form 8938 for the disclosure of foreign financial assets.
- Non-resident individual partners: Form 1040-NR.
Reporting Regimes and Risk Areas
Under FATCA, banks in Turkey and other countries that have reciprocal information-sharing agreements with the US must report US account holders to the IRS. Cross-border transfer pricing arrangements are an area of intensive scrutiny. Foreign bank account reporting (FBAR, Form 114) carries high penalty exposure: for wilful non-compliance, USD 100,000 or 50% of the account balance, whichever is greater. Classification as a passive foreign investment company (PFIC) can produce punitive tax results for offshore investments of US taxpayers resident in Turkey.
When IRS Compliance Requires Attention
For Turkish founders, executives relocating to the US and Turkish investors joining US-linked structures, IRS compliance requires attention at three points: early structuring decisions (choice of US entity, avoiding controlled foreign corporation triggers), ongoing operational compliance (timely filings, accurate transfer pricing documentation, payroll withholding) and significant events (M&A transactions, changes in US residency, transfers of assets to the US).
Sources. Internal Revenue Service (IRS).