From time to time, federal government agencies will conduct their own assessment of other agencies to determine how well they are performing to their mandate. One example was the recent report compiled by the Treasury Department on the IRS’s enforcement actions against U.S. taxpayers with overseas accounts.
Offshore accounts are a critical area of government interest. While many U.S. taxpayers validly make use of these accounts for their finances, the government estimates that a large portion of unpaid taxes occur because of offshore tax evasion schemes utilizing foreign income generating investments and businesses. It is important to note that U.S. taxpayers are taxable on their worldwide net income. The Treasury report is scathing and is likely to produce an increase in IRS offshore enforcement action in the coming months and years.
After reading the report, you may find yourself concerned about future IRS action against your past filings. If you have any questions at all, now is the time to get help from a dedicated International Tax Attorney and CPA. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 or schedule a reduced rate initial consultation online here to learn more.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
In April, the Treasury Inspector General for Tax Administration (or TITGA) published a report about the effects of the Foreign Account Tax Compliance Act (FATCA) and how the IRS can improve enforcement actions against those who violate it.
The title of the 37-page report sends a very clear message about what TITGA expects from the IRS to fulfill its mission: “Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act.”
Over the past few decades, more and more taxpayers looking to improperly conceal income or evade tax assessments have used offshore accounts. In response, Congress passed FATCA to reduce tax evasion by creating greater transparency and accountability with respect to offshore accounts and other assets held by U.S. taxpayers.
Individual taxpayers are required to file Form 8938, Statement of Specified Foreign Financial Assets, with their income tax returns if the aggregate value of the assets exceeds certain dollar thresholds. Foreign financial institutions (FFIs) are required to File Form 8966, FATCA Report, to report information about financial accounts in which U.S. taxpayers hold certain “ownership interests.”
The IRS established Campaign 896: Offshore Private Banking to address tax noncompliance related to taxpayers’ failure to report income generated and information reporting associated with offshore banking accounts. The IRS also created Campaign 975: FATCA Filing Accuracy, which seeks to identify the FFIs that maintain specified foreign financial accounts for U.S. individuals but did not submit Form 8966.
It has been over a decade since FATCA initially took effect. TITGA initiated this review to assess how the IRS’s efforts have gone thus far to use information collected under FATCA in their investigatory and prosecutorial efforts.
The determination of the report was that the IRS had significantly departed from its original plan under the published FATCA Compliance Roadmap. Instead, the IRS had utilized a much more limited compliance effort in these areas. The report theorizes that this was due primarily to limitations in resources, reaching across many areas that include financial funding, sophisticated technology systems, and actual manpower.
According to the report, Campaign 896 had only recently undertaken compliance actions to address potential underreporters and did not initially address potential non-filers at all. In the eyes of TITGA’s assessments, Campaign 725 has thus far failed to reduce FFI noncompliance.
Separately from the IRS’ efforts, the TITGA report also examined the current state of foreign noncompliance as a whole. Unsurprisingly, this assessment concluded that there are still major issues at play. In particular, the report points to challenges caused by lack of Taxpayer Identification Number (TIN) and Global Intermediary Identification Number reporting.
The report would not be terribly useful if it did not also provide solutions in addition to pointing out problems. The report provided several recommendations for the IRS and the administration.
The report suggested additional compliance actions for identified underreporters, including assessing penalties based on variance amounts or conducting examinations on consecutive underreporters. The report also called for additional procedures to identify non-filers.
Specifically for Campaign 975, the report suggested expanding the scope to address noncompliance by FFIs of countries with intergovernmental agreements (IGAs). Another recommendation was that the IRS issue a notice to foreign countries with Model 1 IGAs that all the FFIs must collect and provide the TINs of U.S. individuals owning a foreign bank account. The IRS responded to this recommendation by saying that these countries are already aware, but the report emphasized that this element of their report was critical.
The report also included recommended guidance for internal operation of FATCA campaigns. Among this guidance was the insistence that the IRS establish goals, milestones, and timelines for their campaigns. The report also suggested that the IRS partner with the Small Business/Self-Employed Division (SB/SE) to establish an information sharing program that would provide the SB/SE Division Directors with access to the Form 8938 data so that they could conduct their own examination and collection actions.
The general response from the IRS, with the exception of the IGA notification recommendation, was either agreement or acknowledgement that they were already in the process of implementing the proposed changes. Nevertheless, the publicized report will likely light a fire under the federal tax watchdog and lead to more investigatory and collection action in the future.
If you hold any assets overseas, you may end up facing off against the IRS whether or not your returns are in order. When this day comes, you will want the help of the dedicated Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Call today to learn more at (800) 681-1295 or schedule a reduced rate initial consultation online here.
If you have failed to file a tax return for one or more years or have taken a position on a tax return regarding taxable offshore income that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.