What are IRS' New Strategies to Investigate Tax Evasion

What are IRS’ New Strategies to Investigate Tax Evasion

What are IRS’ New Strategies to Go After Tax Evaders?

The Internal Revenue Service and Department of Justice are aggressively seeking to reduce the tax gap caused by US Taxpayers who are intentionally or willfully failing to file tax returns or file tax returns accurately. More specifically, the US government is actively seeking to crack down on high net worth and high net income earners who are using improper means to artificially reduce their tax returns liabilities. The IRS is hoping with the influx of funding it should be receiving, they can direct a portion of this money to hiring new agents dedicated solely to going after taxpayers who are evading tax either domestically or abroad. Let’s take a look at some of the key provisions of the IRS and DOJ’s proposed strategies.

IRS Investigative Techniques

The IRS Provides the following involving their proposed strategies for tax enforcement: 

      • “Key projects

          • Develop tailored non-filer treatments that are simpler for taxpayers and address common issues that cause taxpayers not to file. Explore more options to help taxpayers become compliant that are simple, easy to understand, and reflect common reasons why individuals and entities fail to file.

          • Build enhanced analytics to detect more non-filers sooner. Use improved data and expand the use of analytics to detect more non-filers as soon as they miss deadlines.

          • Build treatments tailored for non-filers who are not required to file returns but may be eligible for tax credits. Develop analytics to better identify lawful non-filers who may be eligible for a credit or deduction. Explore simple tools and contacts to help them access tax credits for which they are eligible.

          • Expand capacity and resources for our non-filer and return-delinquency programs. Increase capacity and resources for non-filer programs so that we can proactively contact all appropriate non-filing individuals and entities identified, thereby providing exceptional customer service to non-filers who need assistance in becoming compliant.”

Key Objective is High Earners

      • Even with improved taxpayer service, some taxpayers will not comply. The rising breadth and complexity of tax administration, coupled with the sophisticated ways that some taxpayers attempt to evade tax, have outpaced our resources and ability to monitor compliance and close the gap between taxes owed and collected. We will improve our efforts to help ensure that the proper amount of tax is paid and to promote future compliance.

      • Pursuant to Treasury’s directive, small businesses and households earning $400,000 or less will not see audit rates increase relative to historical levels. We will increase our focus on segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals.

      • Modern data analysis tools can greatly streamline these efforts, and the technology investments from Objective 4 will enable this work.

Department of Justice Strategies

The Department of Justice is also seeking to enforce criminal tax fraud related noncompliance more aggressively than they have in the past. Here is a recent excerpt from the department of justices proposed goal and strategies for 2023 and beyond:

      • Item Name: Increased Tax Enforcement Budget Decision Unit(s): Tax Division Organizational Program:

      • Division-Wide Program Increase:

      • Positions: 10 Attorneys: 10 FTE: 5 Dollars: $1.303 million

      • Description of Item The

        • Tax Division is seeking a budget increase of $1.303 million and 10 positions and 5 FTE to assist with the administration’s initiative to revitalize tax enforcement. Justification In 2022, Congress, President Biden, and Attorney General Garland identified revitalizing tax enforcement as critical to guaranteeing that our country has a fair, effective, and credible tax system. Treasury Secretary Yellen recently noted that expanded IRS enforcement efforts will “focus on high-end noncompliance” from large corporations, high-net-worth individuals, and complex large pass throughs.

        • The IRS devoted increased resources to enforcement in FY 2022. Using these resources, the IRS has launched a targeted nationwide hiring initiative, including 470 revenue agents who will specialize in examining individual and business taxpayers and seeking potential fraud, tax schemes, and abusive tax shelters, 350 criminal investigative agents, and new attorney positions to help the agency address high-end, complex noncompliance.

        • As the IRS ramps up efforts to combat sophisticated tax evasion, the Tax Division expects a proportional increase in work referred to it by the IRS.

        • The IRS depends on the Tax Division to support its efforts. In addition, for example, the IRS relies on the Tax Division to issue John Doe summonses, including recent petitions to cryptocurrency exchanges Coinbase, Circle, and Kraken. The Tax Division’s ability to gather information about targeted taxpayers’ possible failure to comply with tax laws provides the IRS with the ability to take administrative actions seeking voluntary compliance with the tax laws. Based on information obtained from the summons to Coinbase, the IRS sent 10,000 letters to taxpayers regarding their obligation to report gains from virtual currency.

        • These “reminder letters” lead to $15 million in assessed tax liabilities without a single audit. A petition to enforce a summons issued to Kraken is currently pending, and if granted, is likely to result in similar “reminder letters” with the potential for additional tax compliance and collections. The IRS’s focus on these areas will only succeed if the Tax Division has sufficient resources to litigate when these matters reach federal district court.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.