IRS Introduces National and International Criminal Enforcement Initiatives

We have previously reported on the IRS Criminal Investigations Division (CID), the agency’s investigative arm that conducts investigations involving taxpayers that have a situation with badges of fraud, indicating potential criminal wrongdoing. If the CID wasn’t intimidating enough, the IRS recently announced the creation of a new strike force that will focus on particular areas of criminal misconduct, with a particular emphasis on international tax crimes.

On a press conference call this week, CID Chief Donald Fort announced the new team of specialized CID agents. According to Fort, the team will report directly to IRS CID executives and will use advanced technology, particularly data analytics to, among other things, identify new areas of noncompliance across the realm of federal taxation. Fort did not provide a timeline as to when the specialized CID group will enter into service, but he did share the first team’s first three areas of focus: international, employment, and microcap stock fraud.

The announcement that the newly-formed team will focus on international tax compliance evidences that although the White House and many GOP Congressional leaders are focused on repealing the Foreign Account Tax Compliance Act and shifting the U.S. to a territorial tax system (not taxing taxpayers on worldwide income), the IRS remains focused on enforcing the laws currently in place, which do require extensive reporting of foreign financial activities.

FATCA, signed into law in 2010, creates an information reporting requirement for foreign financial institutions that have U.S. resident customers. Foreign banks must transmit identifying information about their U.S. customers and information about their accounts to the IRS. Banks that do not comply with the FATCA requirements are subject to a 30% withholding tax on any and all payments that come from U.S. payers.

Foreign Bank Account Reporting (FBAR) laws require U.S. taxpayers with $10,000 or more deposited in a foreign financial institution to disclose the existence of such deposit(s) on a yearly basis. Residents who willfully fail to make such disclosures face a penalty of up to 50 percent of the high-balance of the bank account at issue in the year of noncompliance for each year that the FBAR laws were violated. Additionally, a conviction for the willful failure to file an FBAR disclosure can result in a federal prison sentence of up to 10 years in prison.

The IRS has established the Offshore Voluntary Disclosure Program (OVDP), that allows those taxpayers with undisclosed foreign bank accounts to come forward with a complete disclosure about their offshore deposits and pay a reduced penalty, interest, and any back taxes in exchange for an agreement to not be prosecuted criminally for the willful failure to file an FBAR. The OVDP has one major caveat: if you are being audited or criminally investigated by the IRS for any tax-related issue, your participation in the OVDP may be prohibited. Although the OVDP is not for everyone, it is a valuable resource that should be discussed with your international criminal defense tax attorney as a potential course of action.

If you have a foreign bank account that has not been disclosed to the U.S. government, you should seriously consider seeking the advice of an experienced FBAR attorney. The newly-announced CID strike force appears to be aiming at those taxpayers who are not complying with tax laws relating to international assets. Only a tax defense attorney who is familiar with assisting clients in FBAR compliance and the OVDP program can give you the necessary guidance on how to proceed.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers from all walks of life in a myriad of different tax situations. The thought of being out of tax compliance can be a scary one. A tax defense attorney will work with you to develop a strategy tailored to your needs and circumstances. Don’t let the threat of a criminal tax prosecution keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

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Here is a link to our practice overview video on foreign income and information non-compliance.