HOW THE IRS DISCOVERS TAX VIOLATIONS THAT OCCUR ABROAD

The IRS has a variety of methods for monitoring tax violations that occur overseas, such as going to places overseas, fishing and investigating to obtain information about taxpayers, requiring taxpayers to produce relevant documents stored overseas, and to witnesses and amnesty request.They put pressure on them to provide information about other taxpayers and tax evaders. In addition, the IRS often conducts random audits of taxpayer’s compliance with their tax obligations.

 

AUDIT

The IRS has the right to require taxpayers to prove their declared facts and the various amounts provided in their tax returns, and they can audit taxpayers for various reasons. Some reasons are listed below:

The taxpayer’s tax return content is inconsistent with the taxpayer’s income reported by a third party (Form W-2s, Form 1099s)

Media reports on taxpayer’s wealth and reputation

Information provided by the public

The occupation or industry in which the taxpayer is engaged is a highly tax-prone occupation or industry

There are a lot of weirdness in the taxpayer’s tax return, or the secret computer algorithm found that the taxpayer may have undeclared income; or

Random spot checks: The IRS randomly audits a large number of tax returns each year.

The IRS will find the undeclared income of taxpayers through comparative analysis-for example, it is found that the income declared by taxpayers does not match its net asset value and net expenditure. Any asset of a taxpayer may be included in the net worth assessment of the IRS, and the assessment result thus obtained will be presumed to be accurate in a civil trial.

 

SUMMONS AND SEARCH WARRANTS

The IRS will issue a subpoena and apply for a search warrant to conduct a thorough investigation of the taxpayer’s life. Those who receive a subpoena must appear in court or provide relevant information. The IRS has the right to search a private place and detain relevant documents or property with a search warrant. The relevant department may issue a subpoena against the taxpayer or any insider, but it is subject to the following premises: the investigation conducted by the department on the taxpayer serves a legitimate purpose, the information it requests may be relevant to the investigation, and the IRS is not aware of the information.

 

Tax years that exceed the time limit for litigation may also be investigated to find out whether tax fraud occurred in these years or whether they are related to tax investigations for subsequent years

 

Secret summons

The IRS has the right to apply for specific types of subpoenas to go overseas and to find taxpayers who are not aware of tax violations. The US Internal Revenue Service has the right to require an informed third party (bank, etc.) to identify the corresponding taxpayer according to the description provided by a secret summon. The US Internal Revenue Service only needs to show that it has reasonable grounds to believe that someone in the target group is wanted for investigation. The IRS investigates those they think might have violated the tax laws. They can apply for a secret subpoena.

All foreign financial institutions that trade in U.S. dollars have U.S. managers or have bank accounts with U.S. banks, so the IRS can learn about the thousands of U.S. taxpayers who have opened foreign banks in recent years through the use of secret subpoenas. Account status.

 

 

OFFICIAL DOCUMENT REQUIREMENT

This is a very useful power of the Internal Revenue Service, that is, the right to force taxpayers to provide designated documents that are stored abroad during an audit or investigation.

 

If a taxpayer fails to provide the documents specified by the Internal Revenue Service in the formal document requirements, he may be prohibited from using any documents covered by the formal document requirements in the civil trial process, even if the person has provided some documents in accordance with the formal document requirements. Therefore, taxpayers will not be able to use documents in their favor, such as proof of expenditure to reduce the total revenue figure.

 

FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)

FATCA requires foreign financial institutions (banks, mutual funds, hedge funds, private equity funds, trusts and insurance companies) that provide products/services or annuity products with cash value to report information about US customers to the IRS every year. Foreign financial institutions must identify the “American” identity of the account holder and collect relevant documents to confirm or exclude the “American” identity of the customer.

Information that must be reported to the IRS includes:

·  Customer’s name, address and taxpayer identification number

·  Account number: balance or value

·  Total income and withdrawals

·  Non-American family members and business partners who share accounts with Americans and

·  Americans who have the right to sign non-American accounts

After the IRS obtains relevant information under the FATCA Act, it will repeatedly check the information with the data provided by taxpayers in the overseas bank and financial account declaration forms to find out which Americans have not declared overseas accounts.94 countries have reached an inter-governmental agreement with the United States on the FATCA Act under the model 1 agreements while 14 countries have agreed under the model 2 agreements. All financial institutions in these countries and regions will collect and report relevant information to the IRS.

 

 

COMMON REPORTING STANDARD (CRS)

CRS is a global information-sharing agreement that strengthens multilateral information-gathering operations, and is expected to encourage global financial institutions to identify the “American” identity of more customers and report information about these customers to the IRS in accordance with FATCA regulations. The CRS developed by the Organization for Economic Co-operation and Development (OECD) can be described as a global enhanced version of FATCA. The mechanism aims to promote the multilateral automatic sharing of global tax information, and is applicable to more accounts opened in more types of institutions than FATCA. Financial institutions in CRS participating countries and regions must require customers to provide tax residence information, verify the information, and automatically provide the information to the country and region where the customer’s tax residence is located. Mainland China, Hong Kong, Macau and Singapore all agreed to implement CRS and begin exchanging tax-related information in 2018. Taiwan will also join the CRS in the future, and has taken measures to ensure that its financial institutions have begun to comply with the CRS in the near future. The United States does not intend to join the CRS, but may eventually be forced to join, because if it does not join, it will cause trouble for the relevant US agencies.

COMPLIANCE PROGRAM

One of the prerequisites for participating in the IRS compliance program (such as the Overseas Voluntary Disclosure Program-“OVDP Program”) is related information disclosure, that is, participants must provide information about tax violators, tax evasion programs, and collusion or abetting tax evasion. A lot of information about companies and professionals have been provided to the IRS in the past.. Since 2009, more than 100,000 taxpayers have participated in the OVDP program for overseas law enforcement and related tax compliance programs, thereby recovering tax and interest and imposing fines of more than 10 billion US dollars.

 

WHISTLEBLOWER AND COOPERATING WITNESS

If someone reports the tax arrears to the IRS and the IRS uses the reported information to recover the tax, the Whistleblower Office under the IRS will provide the whistleblower with the equivalent of 15% to 30 % Bonus.Since its establishment in 2007, the Whistleblower Office has recovered a total of US $3.4 billion in taxes and paid a US $465 million bonus to the Whistleblower.

Those who provide relevant information and testify to avoid charges are an important source of intelligence for the IRS. Some taxpayers think they are not under the jurisdiction of the US Internal Revenue Service.

 

COOPERATION WITH OTHER DEPARTMENTS

The IRS works with many federal agencies to share taxpayer information. The Financial Crimes Enforcement Network (FinCEN) is a typical example. As a financial intelligence department, FinCEN aims to implement data mining to identify unclear and unusual capital flows, and to exchange information with the US Internal Revenue Service, Federal Law Enforcement, Customs and Post Office. Specifically, FinCEN has the right to access the following information:

Law enforcement, national security, military and commercial databases

Direct reports provided by banks, casinos, brokerage companies and fund transfer agencies related to suspicious activities and large-scale currency transactions and

Taxpayer’s overseas financial account declaration

 

TAX INFORMATION EXCHANGE AGREEMENT

According to the relevant agreements signed by the United States and other countries, the following taxpayer information must be shared between the countries that signed these agreements. If any country has a bilateral tax treaty with the United States, the country and the United States shall provide each other with the information required for tax enforcement, including any relevant information and one party may request the other party to collect information that it does not already have.

Although some countries have not reached a tax agreement with the United States, they have signed a bilateral tax information exchange agreement (TIEA).

OECD’s “Multilateral Tax Collection and Mutual Assistance Convention” also requires member countries to share tax-related information. Countries that have signed the Mutual Legal Assistance Agreement must exchange information and assist each other in handling tax crimes.

Subject to the legal regulations of various countries, in addition to signing agreements, other countries can also exchange tax-related information and carry out related cooperation.

PASSPORT APPLICATION

New applicants or renewed passports must provide a social security number and explain foreign residence information. Passport applicants who provide incomplete or incorrect information may be fined US $500 by the IRS and rejected by the US State Department. The U.S. State Department will share the collected information with the IRS, which will check whether the relevant U.S. citizens have declared information related to their overseas life (overseas bank account, etc.). Those who provide overseas mailing addresses or apply for passports at overseas consulates, or those whose entry-exit records show that they have not lived in the United States for a long time, if they do not declare their overseas residence, they may be subject to detailed examination.

 

Other methods are also being developed by the IRS to discover tax violations occurring overseas so taxpayers are advised to know their tax obligations and fulfill them. Those who have tax problems can seek help from tax professionals like a IRS lawyers or a federal tax attorney and not ignore them because it takes a second for the IRS to notice any flaw in your taxes and they won’t hesitate to pay you a visit.