IRS Reveals an Aggressive Offshore Tax Enforcement Strategy (2018)
IRS Reveals an Aggressive Offshore Tax Enforcement Strategy (2018)
If you have been following our website over the past year or two, we have been writing extensively on issues involving international criminal tax, tax evasion, tax fraud, and cash structuring, etc.
Here are few links to some related resources:
- Offshore Tax Evasion Examples
- International Tax Crime
- Cryptocurrency Tax Basics
- Cryptocurrency International Reporting
- Cash Structuring Transaction Case Study
- FATCA, Tax Evasion & Money Laundering Case Study
The IRS Has Been Strategizing
While we don’t have a crystal ball, in recent months it has become evident from the recent IRS and DOJ developments that the IRS is ramping up enforcement of offshore tax related matters. Especially since the IRS has been cooperating with many of the world’s other superpowers, in developing strategies to aggressively enforce offshore and foreign tax matters.
Since the penalties associated with misrepresenting, or omitting foreign income, accounts, assets or investments to the IRS can be severe, it is important to be aware of the recent IRS trends – which leads us to one brief preliminary issue facing many taxpayers as of lately.
The IRS Has Been Planning its Strategy for Years
Here is a breakdown/timeline of how over the past 5-10 years, the IRS has steadily brought Offshore Tax Evasion enforcement to the forefront.
FATCA is the Foreign Account Tax Compliance Act. It was developed in 2010, and enforcement began in 2014. More than 110 countries and 300,000 Foreign Financial Institutions have entered into agreements and have already started providing U.S. account holder information to the IRS.
The IRS wanted to find a way to obtain US account holder information regarding foreign money, investments, assets, income, and accounts that US account holders had overseas, but never reported to the IRS. By having foreign countries disclose this information to the IRS, the IRS does not need to rely upon individuals to voluntarily disclose this information in the same manner they did when the OVDP ‘program’ was initiated in 2009.
Result of FATCA
In March of 2018, the IRS announced that OVDP was terminating on September 28, 2018. Therefore, after September 28, 2018 if you were willful or acted with reckless disregard, you will no longer have the opportunity to disclose voluntarily through the traditional OVDP Program. There is another alternative available, but it is not as straightforward as OVDP.
The IRS has not developed any substitute program for OVDP.
International Tax Enforcement Groups
International Tax Enforcement Group Background
Over the last year, the Internal Revenue has developed several International tax enforcement groups. The purpose of these enforcement groups is to train agents specifically on very complex international tax issues so that each particular group has their own focus. Each group will be highly-trained and dedicated to examining individuals/businesses that are out of compliance for not filing and/or for making intentional misrepresentations or omissions to the IRS on very specific international tax issues.
International Tax Enforcement Group Strategy
Instead of having to train agents for OVDP — requiring the agents to have knowledge on many different areas of tax law they may encounter during an OVDP case — the IRS is splitting agents into different groups, and providing them expert training on various complex international tax issues, with each group focusing on one or two specific issues.
International Tax Enforcement Group Result
These IRS agents will presumably uncover the fraud or non-reporting of foreign money and then initiate an audit, examination or referral to an IRS criminal investigation before the person has a chance to “voluntarily disclose.”
OVDP Ends on September 28, 2018
OVDP — Background
The traditional OVDP program has been in existence since 2009 (when it was called OVDI). Since then, the program has morphed multiple times, with increased penalties, increased reporting responsibilities, and more comprehensive disclosure requirements.
OVDP — Strategy
The goal of OVDP was to provide applicants with an opportunity to get into compliance before it was too late. Just as important, it was an opportunity for the IRS to uncover new tax scams, tax havens and other methods for hiding foreign money that the IRS was not previously aware of.
Ending OVDP Result
The IRS has developed offshore enforcement alternatives which includes more comprehensive (and cost-effective) methods for obtaining the information, and OVDP is no longer necessary to the IRS.
DOJ Requests Funding for an Offshore Tax Evasion Division
DOJ Offshore Tax Evasion Background
Recently, the Department of Justice made a request for funding in order to develop five attorneys and one paralegal focused specifically on offshore tax evasion.
As provided in the budget request
“The Department of Justice is seeking more than a half-million dollars in order to structure a team of five (5) attorneys with the sole intent of locating and enforcing offshore compliance. DOJ has made it clear that offshore tax evasion is one of the top litigation priorities.
“Use of foreign tax havens by U.S. taxpayers has been on the rise, aided by increasingly sophisticated financial instruments and the ease of moving money around the globe, irrespective of national borders. While the Division’s enforcement focused initially on cross-border activities in Switzerland, it has expanded to include wrongdoing by U.S. accountholders, financial institutions, and other facilitators globally, including publicly disclosed enforcement concerning banking activities in India, Israel, Liechtenstein, Luxembourg, Belize, Hong Kong and the Caribbean.”
DOJ Offshore Tax Evasion Strategy
The DOJ’s goal is to develop a highly trained team of tax attorneys with laser focus on uncovering, analyzing, investigating and possibly indicting individuals guilty of offshore tax related matters.
It would appear the process would include the following: one of the several tax enforcement groups uncovers information leading to offshore tax evasion and refers the matter to the Department of Justice. Thereafter, the U.S. Government as a whole will be fully equipped to provide a full-court press against any individual, or individuals committing tax evasion.
DOJ Offshore Tax Evasion Result
It will be much harder to avoid a criminal investigation for offshore tax related matters.
J5: The Next Piece to the Puzzle
J5 – Background
Since offshore tax division is becoming a global epidemic, it would only make sense that many of the nation superpowers have banned together to develop a plan to enforce offshore tax related matters.
The name of the enforcement group is J5, and consists of the heads of tax crime and senior officials from multiple organizations such as:
- Australian Criminal Intelligence Commission (ACIC)
- Australian Taxation Office (ATO)
- Canada Revenue Agency (CRA),
- Dutch Fiscal Information and Investigation Service (FIOD)
- Her Majesty’s Revenue & Customs (HMRC), and
- Internal Revenue Service Criminal Investigation (IRS-CI).
What is important to note, is the group was founded in accordance with concerns made by Organisation for Economic Co-operation and Development (OECD).
In addition to FATCA, there is another offshore enforcement initiative called CRS. CRS is the Common Reporting Standard. Interestingly, while many countries have agreed to enforce CRS through (AEOI aka Automatic Exchange of Information), the United States is not yet one of the countries that has signed onto CRS…
…Nevertheless, the U.S. has agreed to participate in J-5, which may be a sign of things to come.
The IRS wants to align itself with various superpowers worldwide in order to make sure it gets its piece of the pie regarding offshore tax evasion income it has already missed out on.
Moreover, it also shows that the IRS is serious when it comes to offshore tax evasion, and that combined with the proceeding paragraphs, it is clear that once the IRS finds you and uncovers your undisclosed foreign accounts — you may be in big trouble.
As an individual with unreported foreign accounts, income, asset, or investments, it is important that you research this area of law before taking any action, interview experienced IRS Offshore Voluntary Disclosure Attorneys, and consider entering the traditional Offshore Voluntary Disclosure Program before it is too late.
Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.