October 30, 2008 - Phil Hodgen

IRS focus on international — now with more grumpy penalty assessments

Today’s Tax Notes Today has a report from the UCLA Tax Controversy Institute on October 28, 2008. For those of you spending way too much money on Lexis, the cite is 2008 TNT 211-7.

The article states:

In keeping with IRS Commissioner Douglas Shulman’s focus on international tax administration, fraud technical agents are for the first time being specially trained in the international area, said Beth Elfrey, IRS director of the Small Business/Self-Employed Division Office of Fraud/Bank Secrecy Act.

Elfrey, speaking at the October 28 UCLA Tax Controversy Institute in Beverly Hills, Calif., said foreign bank account report (FBAR) filings are up 90 percent over last year. The penalty for failure to file an FBAR is steep, she said — as high as 50 percent of the account balance in some instances.

Faris Fink, SB/SE’s newly appointed deputy commissioner, speaking October 29 at the American Institute of Certified Public Accountants conference in Washington, talked about the division’s intention to increase departmental interaction. “In SB/SE, we traditionally have not had a lot of interaction or involvement with international,” Fink said. “More and more we’re finding our taxpayers are involved in transactions that have an international flavor to them.” He said the division is responding by continuing its emphasis on the offshore compliance initiative, including the offshore credit card and private banking initiatives.

“We’re going to have to ramp up . . . our knowledge and our experience around how individuals use the international arena to shelter income,” Fink said. The division’s new international examination groups will be located in cities where the Service has detected a higher level of activity, Fink said.

Victor Song, deputy chief of the IRS Criminal Investigation (CI) Division, said at the UCLA conference that fiscal year 2009 priorities remain largely the same as last year, with a focus on Title 26 criminal cases. CI is looking at “working the largest crimes that we can in the most efficient amount of time,” Song said. On average, 80 percent of the cases CI pursues get publicity, he said.

The IRS has recently introduced the concept of automatic penalties if you file a late Form 5471. See IRS letter to taxpayer on late filed Form 5471 (PDF). Take that action and public comments as reported above as your sure-fire warning that things are going to REALLY crank down hard in the international arena.

Deliberate noncompliance (oh, let’s just call it lying, shall we?) has never worked well. Accidental noncompliance (oh, let’s just call it “I forgot”, shall we?) will soon become expensive.

The evangelist in the tent is calling “Come to Jesus!

Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure