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IRS Criminal Investigation: Data Analysis

In a press call in August 2017, Mr. John D. Fort, the new IRS Criminal Investigation (CI) Division IRS Criminal InvestigationChief, announced the establishment of two investigation initiatives: 1. Nationally Coordinated Investigations Unit and 2. International Tax Enforcement Group that will report directly to CI’s frontline executives.

The international group will consist of elite special agents who will investigate and pursue international tax cases. Based in Washington, DC, the group will utilize agents through the US as well as overseas, and it will target taxpayers who have not fully reported their worldwide income and foreign financial assets.

Where is the IRS getting data on you? From a host of sources.

A US person is defined as any US citizen, Green Card holder or any corporation, partnership or other organization established under the law of the United States. A US person needs to file various income tax and informational reporting forms with the IRS and the Treasury Department. Due to these filings, the IRS has already compiled a wealth of data from income tax filings and Foreign Bank Account Reports (FBARs) and from various voluntary disclosure programs that have been in place since 2009.

In recent years, the IRS has received data from foreign financial institutions globally as required under the Foreign Account Tax Compliance Act (FATCA). The amount of data collected by the IRS is expected to increase as more countries are cooperating under the FATCA Intergovernmental Agreements (IGAs) in their respective jurisdictions and with the information exchange provisions in most of the current US tax treaties.

Can the IRS track non-compliers? Probably, yes.

The International Tax Enforcement Group (“ITEG”) is dedicated to developing significant international tax investigations, focusing on international tax enforcement. ITEG will use specialist algorithms and advance data analytics to leverage data compiled by taxpayer and FATCA submissions. They will also analyze data published by whistleblowers, including the Panama Papers, Paradise Papers and other sources.

The IRS continues to maintain its presence internationally, with attachés on the ground in various locations. These attachés are responsible for coordinating with foreign governments and law enforcement agencies and assisting with information exchanges.

The IRS is targeting both institutions and individuals; individuals targeted include bankers as well as foreign account holders. Courts are imposing increasingly heavy fines and even prison sentences.

Individuals have been increasingly targeted through a two-fold increase in FBAR penalty cases between 2016 and 2017.  The IRS Criminal Investigation division believes that many taxpayers are not complying with foreign reporting requirements. It is estimated that between 6 and 9 million US persons reside internationally and only a fraction of these taxpayers are complying with their US reporting annually. In recent years, FBAR filings continue to increase, in 2015, just over 1 million FBARs were filed.

What should you do if you have not yet complied with your US filings? Seek help as soon as possible.

We recommend that US persons (citizens, Green Card holders and residents) who have not complied with their US filings or have unreported income or assets, get compliant as soon as possible. Wishful thinkers believe that the new efforts will pass them by should think again, as it is increasingly likely that you may hear from the IRS as they continue to mine existing data and continue to obtain further data on US persons globally.

If you have been willfully non-compliant, applying to the current Offshore Voluntary Disclosure Program (OVDP) is likely to be your best option. If your failure to comply was not willful and you can certify this, (under penalty of perjury), you may be able to bring yourself up today under the IRS Streamlined Filing Compliance Procedures.  The option of “quiet” disclosure where a taxpayer simply files amended returns and hopes the IRS will accept them without imposing substantial penalties, is no longer an option as the IRS monitors situations involving multi-year filings.

If you have questions on any of the above, contact us.

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