In the summer of 2017, Don Fort was appointed as the Chief of IRS Criminal Investigation (CI). The purpose of CI is to ensure efficiency in handling tax crimes, and hunt down tax criminals. Fort plans to take aim at international tax wrongdoing in a more targeted way, through data analysis and new international tax enforcement groups.
Tax evaders should beware, as the chief of CI, Don Fort, along with Eric C. Hylton, the Executive Director of International Operations for the U.S. CI have several new measures in mind to control and minimize tax evasion and crimes.
The following are some of the target measures that the IRS CI is considering to stop U.S. persons (Citizens, greencard holders, qualifying residents and non-residents) from evading U.S. taxes.
IRS Criminal Investigation (CI) Division
The IRS Criminal Investigation (CI) division investigates potential criminal violations of the Internal Revenue Code and related financial crimes. It is responsible for identifying tax cases that should be subject to federal prosecution, and also, has the authority to investigate these matters.
Fraudulent practices by taxpayers, tax preparation professionals or other individuals, and scams related to employment tax, schemes involving tax payments and more fall under the tax crimes category.
Tax Crimes & IRS Efforts
According to Eric C. Hylton, ever since the financial crisis, there has been a growing awareness of international tax crimes.
Several measures have been introduced to prevent tax evasion. For example, U.S. taxpayers now need to report their foreign financial accounts and assets to the IRS by filing Report of Foreign Bank and Financial Accounts, FBAR FinCEN Form 114. They also need to comply with the Foreign Account Tax Compliance Act (FATCA) and file Form 8938 Statement of Special Foreign Financial Assets.
Some additional foreign assets and accounts reporting requirements that qualifying U.S. taxpayers, resident or non-resident, need to comply with are:
- IRS Form 3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
- IRS Form 3520-A: Annual Information Return of Foreign Trust with a U.S. Owner
- IRS Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
Furthermore, to enhance efficiency of these tax Acts, the IRS signed the International Data Exchange Service (IDES) agreement with foreign tax authorities and foreign financial institutions (FFI). This agreement requires FFIs to disclose information of clients, who are U.S. citizens, or green-card holders, to their tax authority. The tax authority will then forward the information to the IRS in exchange for any existing U.S. financial information of their country’s citizen.
The IRS will then filter out those U.S. persons, who have not complied with the FBAR and FATCA regulation, and carry out a confidential investigation. Once the IRS has significant tax evasion, and non-compliance information against the U.S. person, it will then issue a warrant or notice.
IRS Criminal Investigation’s (CI) Methods To Catch Tax Criminals
Traditional Tax Inventory
Traditional tax cases are referred to the Department of Justice (DOJ), and include Employment Tax, Abusive Tax Schemes, International Tax Enforcement, Return Preparer Fraud, fraud referrals, and other general tax crimes.
Due to declining resources, work on these cases was significantly reduced. However, now, the IRS-CI plans to redirect resources that were dedicated to identity theft to solve these traditional tax cases. This is because traditional tax cases are complex investigations that require financial expertise of the CI, unlike identity theft cases, which can be handled by other departments.
IRS-CI Tax Data Mining
Another major goal of the CI is to use data mining for tax investigations. The IRS has significant raw data of U.S. taxpayers and their foreign financial assets. A major source of this data is the IRS’s Offshore Voluntary Disclosure Programs (OVDP). Over the 8 years period, since the OVDP was introduced, the IRS has been feeding data provided by numerous taxpayers into its E –Trak System.
Additional data has been obtained through the various programs that the IRS has been running to prevent tax evasion and information leaks. Some of these are – the Swiss Bank Non-Prosecution Program, Whistleblowers and Investigative Journalist Leaks, and the FATCA IRS IDES Agreement with Foreign Tax Authorities and Financial Institutions (FFIs).
New Departments To Handle IRS Tax Crimes
The IRS-CI will be establishing a Nationally Coordinated Investigations Unit (NCIU). This unit will use the available data (mentioned above) to better select criminal investigations. International tax enforcement will be one of NCIU’s initial projects.
Furthermore, the IRS criminal Investigation Division will be forming an International Tax Enforcement (ITE) Group in Washington DC. This group will be dedicated towards working and development of important international tax investigations. The (ITE) group will be comprised of IRS personnel in DC, personnel from the Justice Department’s Tax Division, IRS agents from other IRS locations in U.S. and several other international partners, who are subject-matter experts (SMEs).
The ITE Group will also be using the available data to identify its investigation targets.
IRS Tax Crime “Campaigns”
The IRS indicated that they will be identifying returns for audit under a new method called “campaigns”. The IRS will select tax returns for audit based on data analysis. This data analysis will be be used to identify areas of tax noncompliance and target tax returns for audit that will be more likely to result in tax revenue and penalties.
For example, under ‘Campaigns’ program, the IRS will be analyzing data of “OVDP Declines and Withdrawals”. The analysis will be carried out to identify those OVDP applicants, who applied for pre-clearance into the IRS Offshore Voluntary Disclosure Program (OVDP) but were either denied access or withdrew from the program of their own accord. If identified as a potential (revenue generating) taxpayer, they are now the subject of more intense IRS scrutiny for audit.
IRS Tax Nudging
Starting in early 2018, the IRS will be sending out “nudge” letters to U.S. persons with financial accounts and investments in Swiss banks, that signed waivers allowing the banks to hand over data under a Justice Department program. Under this program, banks could escape prosecution if they paid hefty penalties and turned over information on U.S. money they were helping to hide.
The nudge letter will offer taxpayers a last chance to comply, before the IRS-CI agents become involved and charge the taxpayer for tax crimes.
IRS-CI’s Tie-Up With Foreign Countries
Furthermore, the IRS-CI has special agents (diplomats) strategically stationed in 10 foreign countries (Canada, Mexico, Colombia, Panama, Barbados, The Netherlands– Europol, England, Germany, China and Australia). These diplomats continuously build and maintain strong alliances with foreign governmental, law enforcement and industry partners, to provide CI with the ability to develop international investigative leads and support domestic investigations that have an international nexus.
IRS’s CI Office of International Operations (IO) educates foreign governments and agencies on crime detection, investigative techniques, case studies, emerging trends, and best practices. It is also working closely with the Organization for Economic Cooperation and Development (OECD) on international tax crime, and has recently started training at the International Academy for Tax Crime Investigation sponsored by the OECD.
Don Fort, the IRS CI Chief, is committed to getting rid of tax crimes. In one of his meetings, he was further quoted as saying, “Criminals would be foolish to mistake declining resources for a lack of commitment in this area.”
AG Tax advises U.S. persons, living within and outside the United States, to exercise caution when deciding on ways to become tax compliant (if non-compliant). It is best practice to obtain an experienced professional’s advice before going ahead with filing an application under the IRS Streamlined Filing Program, or OVDP, since doing so could make them a potential audit candidate under the ‘OVDP Declines and Withdrawals’ campaign mentioned above.
AG TAX LLP CAN HELP
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