The Criminal Investigation division of the IRS listed global investigations as one of its top priorities for 2018. In its continuing to effort to identify tax evaders overseas, the IRS is coordinating efforts with foreign governments and other organizations, such as the OECD, to gather data and ultimately target those who are hiding money from the government. The agency is also using information obtained from whistleblowers and the Panama Papers.

 

As part of the crackdown, the agency has launched two programs to unearth potential evaders. The first effort targets taxpayers who may have opted out or removed themselves from the Offshore Voluntary Disclosure Program (OVDP), which allowed them to report offshore assets and pay a penalty, but avoid prosecution. Through the OVDP program, the IRS works with taxpayers who have undisclosed income in offshore accounts to become compliant and current with their tax returns. Although financial penalties can be significant, the program shields individuals from the legal jeopardy they could face if the undisclosed assets were identified at a later date.

 

The IRS intends to rely heavily on the Foreign Account Tax Compliance Act (FATCA), which requires foreign banks to hand over banking information of U.S. taxpayers, to pursue potential offenders. The U.S. currently has agreements with 90 jurisdictions, and with up to seven years of records from the program, the data gathered is starting to paint a clearer picture. The agency will compare the information it already has on hand with FATCA data in order to identify potential evaders and potential fraudulent events.

 

The second IRS campaign will investigate individuals whose information was provided by Swiss banks to the Department of Justice through the Swiss Bank Program. Initiated in 2013, the program allowed Swiss banks to disclose to the U.S. if they had reason to believe that an individual committed tax-related offenses through U.S.-related accounts. Banks in the program have the potential to avoid prosecution if they cooperate with the agency, although institutions that were already under investigation weren't allowed to participate.

 

Starting in January, the IRS is sending letters to individuals who have accounts at Swiss banks asking them to hand over their information. The letters are being sent to individuals who have accounts with banks that are cooperating with the program. Letters to individuals will indicate that the IRS obtained their information from the bank as part of the investigation process, but not much more information as to the nature of that information.

 

As these enforcement initiatives gain momentum, U.S. taxpayers with overseas accounts and assets should consult with qualified tax professionals to ensure they remain in compliance.

Overall, the number of indictments from the IRS's Criminal Investigation (CI) unit has declined in recent years, as the agency copes with budget and resource cuts. Notably, however, the number of international indictments has been rising, signaling the CI unit's increased focus on offshore tax evasion.

 

According to a Bloomberg Tax analysis of data from the CI unit's 2017 annual report, international cases made up more than 9 percent of the unit's investigations in 2017 - the highest level in 10 years, and a hundred-fold increase over 2015 numbers. Further, the indictment rate - charges brought as a percentage of cases investigated - has gone up, as the government takes a more targeted approach to maximize its resources.

 

It's believed that the shift toward international indictments is due to the greater return on investment opportunity these cases present for the IRS, which needs to align its available resources strategically in the face of budget cuts. Instead of focusing on lower offenses, such as identity theft, the agency can strategically allocate resources to target holders of offshore accounts. Since 2009, offshore compliance programs, designed to help taxpayers correct previous shortcomings, have helped the government bring in upwards of $10 billion dollars. Now, the IRS is increasing its enforcement of Foreign Bank and Financial Accounts reports (FBARs), which should theoretically lead to an additional windfall for the agency.

 

Penalties for failure to file FBARs can be significant. Those who are found to have willfully and knowingly failed to file the form can be assessed penalties of $100,000 or 50% of the amount in the account at the time of the violation, whichever is greater. The IRS can go back several years and impose similar penalties for each offense.

 

The Department of Justice (DOJ) has also made prosecuting those who flout offshore tax rules a priority. On top of its investigations of Swiss banks that may have helped filers evade taxes, the Department is also looking at Asian banks that may be aware of clients who are noncompliant with U.S. tax filing rules.

 

The IRS, through its Offshore Voluntary Compliance Program, and the DOJ, through its Swiss Bank Program, are making a concerted effort to tackle noncompliant offshore tax filers. The data they gather through these efforts, coupled with a sharpened focus on FBARs, arm the agencies with greater resources and the information needed to detect those who don't conform with U.S. tax rules.