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International tax investigations are an IRS high priority

International tax compliance is currently a top priority of the IRS. The IRS perceives a pattern of abuse where U.S. Taxpayers use offshore accounts, entities and assets to facilitate noncompliance with the U.S. Tax Laws (Tax Evasion). Consequently, for the Service, tax evaders using offshore methods to evade taxes, is an issue of “fundamental fairness to tax administration” and as such impacts every honest taxpayer. IRS Commissioner, Douglas H. Shulman recently stated, “The IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location. And we will work with other governments where possible to obtain the information we need,” To this end the current IRS Criminal Investigation Divisions strategy to combat offshore tax evasion is to cast a wide enforcement around the world.

To combat the perceived growing offshore threat to fair tax administration, the Service employs teams of special agents trained as forensic accountants to follow the money from the crime (Hidden and unreported offshore investments and businesses) to the criminal (U.S. Tax Evaders). Their expertise is in establishing culpability and finding hidden wealth. Because many other world governments are aware of the same problem with their citizens, new ways of exchanging information and intergovernmental cooperation are currently being developed. Additionally, attachés have been dispatched to key foreign embassies and consulates to strengthen ties with our international government partners for the purpose of gathering and sharing information. When it comes to international financial crime investigations the IRS is leaving no stone unturned and has even solicited the participation of INTERPOL, the Terrorist Finance Working Group, the Financial Action Task Force, and the Organization for Economic Cooperation and Development where appropriate.

Regulatory actions taken to curtail foreign account, investment and entity abuse include several recent legislative and regulatory initiatives. The Stop Tax Haven Abuse Act, for instance, targets the nearly $100 billion that the U.S. Government estimates is lost in revenue each year from offshore tax evaders. The Act authorizes special measures to stop offshore tax abuse by allowing the Treasury to take specified steps against foreign jurisdictions or financial institutions that impede U.S. tax enforcement among its other provisions. Furthermore, on February 29, 2012, the Financial Crimes Enforcement Network (FinCEN) issued an advance notice of proposed rulemaking pertaining to the possible application of an explicit customer due diligence (CDD) obligation on financial institutions, including a requirement for financial institutions to identify beneficial ownership of their accountholders. Key elements of this strategy include: (i) improving the availability of beneficial ownership information of legal entities created in the United States; and (ii) facilitating global implementation of international standards regarding CDD and beneficial ownership of legal entities.

Throughout the world, tax authorities have prioritized audits and criminal investigations of transactions and persons involved in international tax avoidance and crimes. Consequently, international litigation and prosecutions have been brought not only against tax evaders, but increasingly against intermediaries and promoters, such as banks and financial institutions, asset managers, lawyers, accountants, and other financial service providers. The implication of these international tax compliance developments is that international tax authorities are drawing a line in the sand and crossing it means that tax evaders, non-compliant financial service providers and promoters may very well spend many years and enormous resources defending themselves.