IRS Answers Boustany on Collecting Taxes on Offshore Marine Activities

Thank you for your letter dated June 6, 2012, regarding tax compliance among the foreign entities chartering vessels for operations and services in the Gulf of Mexico. Earlier this spring, you wrote on our efforts to ensure that U.S. and foreign entities engaged in U.S. income-producing activities on the U.S. Outer Continental Shelf comply with their U.S. tax obligations. At your request, IRS staff met on April 23, 2012, with members of your staff to provide an overview of the IRS's efforts in this area.

Your letter referenced a letter dated May 2, 2012, from the Offshore Marine Service Association (OMSA) applauding the significant progress the IRS has achieved in collecting taxes on U.S. source income generated from activities on the Outer Continental Shelf. The OMSA also requested that we issue a third Industry Director Directive (LB&I Directive). The LB&I Directive would focus on withholding obligations under sections 1441 and 1442 of the Internal !Revenue Code (the Code); the tax obligations on U.S. source income under sections 861, 881, and 882 of the Code; and the absence of a treaty exempting compliance with these obligations.

The purpose of an LB&I Directive is to provide guidelines and instructions to examiners on procedures and administrative aspects of compliance activities to ensure consist Emt treatment of taxpayers. The LB&I Directives are not official pronouncements of the law or the IRS's position. We will review the OMSA's request to determine if an LB&I Directive is a suitable tool to address its concern.

Thank you for your continued interest in this issue. If you have any questions, please contact me or have your staff contact Cathy Barre, Director, Legislative Affairs, at (202) 622-3720.