Heather Maloy IRS: Changes in LB&I and Corporate Tax Compliance

The IRS’s Large Business & International (LB&I) division oversees tax compliance for large corporations and international entities. Under Heather Maloy’s leadership, the division has reshaped its audit and enforcement strategies to improve efficiency and ensure businesses meet their tax obligations.

With increasing scrutiny on multinational companies, understanding these changes is essential for corporate taxpayers.

LB&I’s Role in Corporate Audits

LB&I audits corporations with assets of $10 million or more to ensure compliance with federal tax laws. These audits focus on underreported income, improper deductions, and tax avoidance strategies. Given the complexity of corporate tax filings, LB&I prioritizes cases with the highest likelihood of noncompliance using data analytics, industry trends, and historical compliance records.

To select businesses for audit, LB&I examines financial statements, transfer pricing arrangements, and tax positions. Companies reporting significant foreign income while paying little U.S. tax may be flagged for review. The division also scrutinizes tax credits, such as the Research & Development (R&D) credit, to ensure proper substantiation.

Audits, particularly those involving multinational corporations, can take years to complete. LB&I examiners assess intercompany transactions to prevent profit shifting, applying regulations to ensure fair income allocation between related entities. If discrepancies arise, businesses may face tax adjustments, penalties, and interest charges. The division works with the IRS Office of Chief Counsel to resolve disputes, sometimes leading to litigation.

Structural Changes in the Division

Under Heather Maloy’s leadership, LB&I has shifted toward issue-based examinations rather than broad audits. This allows examiners to focus on tax issues with the highest compliance risks, reducing unnecessary burdens on businesses while improving audit efficiency. Instead of reviewing an entire tax return, LB&I may target areas such as uncertain tax positions reported on Schedule UTP or specific deductions that frequently lead to disputes.

To support this refined audit strategy, LB&I has expanded its use of centralized compliance campaigns. These campaigns address recurring tax issues affecting multiple taxpayers, such as the treatment of foreign-derived intangible income or the classification of worker compensation. Concentrating resources on these areas allows the IRS to tackle widespread compliance concerns while providing clearer guidance to businesses. LB&I also collaborates with the Small Business/Self-Employed unit to ensure consistent enforcement across taxpayer segments.

Technology has played a growing role in these structural changes. LB&I has enhanced its data analytics capabilities to identify noncompliance patterns more effectively. Artificial intelligence tools analyze tax return data, helping examiners detect anomalies that may indicate aggressive tax planning. For example, companies with significant related-party transactions deviating from industry norms may be flagged for further examination. Additionally, LB&I has increased its reliance on electronic data submissions, streamlining audits and reducing delays.

Approach to Domestic Tax Compliance

Ensuring corporations adhere to U.S. tax laws involves enforcement measures, voluntary disclosure programs, and regulatory frameworks. One key focus is the accuracy of corporate tax returns, particularly how companies report taxable income and deductions. The IRS has placed greater emphasis on reconciling discrepancies between book income and taxable income, often scrutinizing Schedule M-3 filings for large corporations.

Proper recordkeeping has become increasingly important. Businesses must maintain detailed records to substantiate deductions, depreciation schedules, and expense classifications. The IRS has increased examinations of depreciation claims under the Modified Accelerated Cost Recovery System to ensure companies correctly apply recovery periods and bonus depreciation rules. Misclassifications in asset categories can result in significant tax adjustments.

The IRS has also increased scrutiny of pass-through entities, such as partnerships and S corporations, used to minimize corporate tax liabilities. While these structures offer tax advantages, the agency monitors potential abuses, including inappropriate income allocations and questionable losses. Passive activity loss limitations prevent taxpayers from using losses from passive investments to offset active business income. IRS enforcement efforts have targeted improper classification of business activities to circumvent these rules.

International Filing Considerations

Corporations operating across multiple jurisdictions must navigate complex tax reporting requirements, with the IRS closely monitoring cross-border transactions and offshore income. A key compliance challenge involves reporting foreign earnings under Subpart F, which prevents U.S. companies from deferring tax on certain types of passive income earned by controlled foreign corporations. Businesses must carefully analyze their foreign subsidiaries’ income streams to determine whether these rules apply, as misclassification can lead to unexpected tax liabilities and penalties.

The Global Intangible Low-Taxed Income (GILTI) regime further complicates international tax planning by subjecting U.S. shareholders of controlled foreign corporations to immediate taxation on high-return foreign earnings. Income exceeding a 10% return on a company’s foreign tangible assets is taxed at a minimum effective rate of 10.5% for corporations, with foreign tax credits partially offsetting the burden. Miscalculating GILTI inclusions or improperly applying the high-tax exclusion can significantly impact a company’s tax liability.

Communication with Stakeholders

LB&I has prioritized engagement with corporate taxpayers, industry groups, and tax professionals as it refines its compliance strategies. Given the complexity of tax regulations, the division has expanded efforts to provide transparency around audit processes, policy shifts, and areas of heightened scrutiny. This includes issuing guidance through IRS publications, hosting stakeholder meetings, and participating in industry forums.

One of the most impactful initiatives has been the use of Practice Units—internal IRS training materials that outline how examiners approach specific tax issues. Originally designed for internal use, these documents are now publicly available, offering businesses insight into how the IRS evaluates transactions such as cost-sharing arrangements or the treatment of hybrid entities. By reviewing these materials, companies can proactively assess their tax positions and mitigate risks before an audit arises.

LB&I has also strengthened its Advance Pricing Agreement and Mutual Agreement Procedure programs to facilitate dispute resolution in transfer pricing matters. These programs allow multinational corporations to negotiate pricing methodologies with tax authorities in advance, reducing the likelihood of double taxation and prolonged litigation. With increased scrutiny on intercompany transactions, businesses engaging in cross-border trade have been encouraged to utilize these mechanisms to achieve greater tax certainty.