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March 26, 2010

More on IRS Commissioners Position on Offshore Disclosure and International Enforcement

The Journal of Accountancy has just interviewed the IRS Commissioner. The following two questions addressed the IRS on the recent Offhsore Voluntary Disclosure Program and US tax enforcement abroad:

JofA: What can you tell us about processing the estimated 14,700 voluntary disclosures last fall under the reduced-penalty program for foreign financial transaction reporting?

Shulman: For several years, we have been very focused on offshore compliance. When he was a senator, President Obama emphasized offshore compliance and then came in and immediately gave us tremendous new resources for it. [Treasury] Secretary [Timothy] Geithner made this an agenda item at the G8 [Group of Eight summit].

The U.S. government is getting very serious about rooting out offshore tax evasion. And while we’re increasing the risk that you’re going to get caught if you’re hiding assets overseas, we made an offer where people could come in and pay their taxes and interest and a stiff penalty but avoid going to jail. The response was overwhelming. We would have never imagined that 14,700 people would come in.

We are still in the early stages, wading through those returns, looking at information, at patterns of institutions or advisers who help people park money overseas and not pay taxes. Where we don’t have enough information from a taxpayer, we’re digging deeper with further questions and potential audits. This will be a treasure trove of information for us to look for and pursue other wrongdoing.

JofA: Can you say anything about what the government’s next move might be in the UBS case or other foreign financial transaction reporting initiatives?

Shulman: Our offshore compliance effort is a multifaceted and multiyear effort. Probably, the next big thing, I hope, will be passage of FATCA, the Foreign Account Tax Compliance Act. A blueprint was put forward by President Obama in his 2010 budget, and legislation has been introduced by Senate Finance Committee Chairman Max Baucus, [Former] House Ways and Means Committee Chairman Charles Rangel and others. It will require financial institutions doing business as qualified intermediaries to report more information and do more due diligence, so it will give us a lot more and better information. If people don’t sign up to be a QI, there will be withholding at the source.

The president last year gave us funding to hire 800 new people in our international operations. In the 2011 budget that was just put forward, he added funding for another 800 people, so we’re building up expertise. I’m spending a lot of time with my counterparts in foreign governments, comparing notes and sharing information, so international cooperation is being stepped up. We started a high-wealth unit recently, which will look at the web of finances of high-wealth American taxpayers, and that will include their foreign accounts and resources. We are moving on multiple fronts.

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