Many people thought a Republican administration would usher in an era of scaled-back tax enforcement. But despite the hostility toward the Internal Revenue Service – and taxes in general – on the 2016 campaign trail, nothing could be further from the truth.
The IRS and the Justice Department’s tax division continue to target domestic and offshore tax evasion, and with a $458 billion annual tax gap – the difference between tax due and tax timely paid – it will come as no surprise that both parties support these efforts and hope to use the funds to support health care, our armed forces and infrastructure.
Notwithstanding the $2 billion cut to the IRS budget since 2010, IRS Criminal Investigation has focused on using its scarce resources to transform itself into a 21st century law enforcement agency. That process got a major boost last month when the IRS announced two new investigation initiatives to go after high-stakes tax evasion – a nationally coordinated investigations unit and a dedicated international tax enforcement group.
This announcement should be viewed as a clear warning shot that the agency is maintaining pressure on individuals and entities who evade U.S. tax and reporting obligations or assist others in such conduct. By using modern data tools to identify nationwide trends, the IRS is enhancing its ability to identify and investigate tax crimes.
The nationally coordinated investigations unit is designed to identify new and emerging areas of tax noncompliance and to effectively coordinate cases with a nationwide impact. This effort will be bolstered by the recent investments in manpower, hiring and training approximately 150 new criminal investigation agents in the last two years and adopting cutting-edge technology, including sophisticated data analytics. First up for the new unit will be cases involving international tax evasion, employment tax enforcement and microcap stock fraud.
Meanwhile, the dedicated international tax enforcement group, consisting of experienced special agents with offshore expertise, will boost its investigations involving foreign accounts and financial assets, as well as foreign entities, trusts, and other structures designed to evade U.S. tax and reporting requirements.
Even before the recent IRS announcement, the Justice Department and the IRS were beating the drum. In July, a former Credit Suisse banker pleaded guilty to conspiring with U.S. taxpayers and other banks to defraud the United States. Earlier that month, a Florida businessman was sentenced to 57 months in prison for conspiring to commit tax and bank fraud by transferring funds to accounts in Belize concealed through foreign shell companies and conspiring with individuals associated with a Cayman Islands investment firm to hide funds in numbered accounts.
Countries around the world are following suit and increasing their investment in tax enforcement to address their respective tax gaps. For example, the Canada Revenue Agency is taking steps to address its 47 billion Canadian dollar ($38 billion) tax gap by establishing specialized collection teams, increasing collaboration and information sharing with domestic and foreign partners and enhancing its voluntary disclosure program. Similar efforts are being pursued in Latin America, which recently estimated the cost of tax evasion to be $340 billion, and the United Kingdom, which estimated its tax gap to be 36 billion pounds, 5.2 billion of which was attributed to tax evasion.
These efforts have not gone unnoticed by tax practitioners. We’ve seen an increase in audits, litigation, collection efforts and criminal tax investigations.
Individuals and entities, both here and abroad, should not be lulled into a false sense of security by the current U.S. political and budget environment. The change in administrations clearly has not altered the government’s tax enforcement efforts, and last month’s announcements by the IRS Criminal Investigation are further warning of an aggressive strategy to identify noncompliance and conduct domestic and cross-border investigations to close the tax gap.
Caroline D. Ciraolo, who headed the Justice Department’s tax division from 2015 to 2017, is currently a partner at Kostelanetz & Fink in Washington.
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