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, this is an issue of “fundamental fairness to tax administration” and as such, impacts every honest taxpayer. ,To this end, the current IRS Criminal Investigation Division’s strategy to combat offshore tax evasion is to cast a wide enforcement net around the world.
To combat the perceived growing offshore threat to fair tax administration, the IRS 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). The expertise of the special agents is in establishing culpability and finding hidden weath and unreported income.
Because many other world governments are aware of the same problem with their citizens, new ways of exchanging information and intergovernmental cooperation are in use. Additionally, attachés have been dispatched to key foreign embassies and consulates to strengthen ties with international partners for the purpose of gathering and sharing information.
When it comes to international financial crime investigations, the IRS is leaving no stone unturned. It 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 recently updated 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 U.S. Treasury to take specified steps against foreign jurisdictions or financial institutions that impede U.S. tax enforcement, among its other provisions.
The Stop Tax Haven Abuse Act now limits the way corporations are able to avoid taxation in the U.S. by moving jobs and assets outside the country. The Act also limits and eliminates incentives associated with moving jobs to foreign countries. American companies that attempt to use mergers with foreign companies as a means of avoiding taxation will find this loophole closed through passage of this bill.
Additionally, this legislation gives the IRS and the federal government more tools to seek out and crack down on illegal tax shelters. Determining whether you’re still in compliance with the updated Act is best done when you have the services of a professional available.
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. Crossing it means that tax evaders, non-compliant financial service providers, and promoters may very well spend many years and enormous resources defending themselves.
Should you need specific advice regarding making investments or operating your business in a foreign country and maximizing your tax benefits, while remaining in compliance with the law, please contact The Tax Law Offices of David W. Klasing at 800-681-1295 or through our online form.