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Oct. 27 — The IRS’s criminal investigations arm is moving beyond Switzerland in its efforts to track down U.S. tax evaders, the agency’s investigations chief said.
“In fiscal year 2017, IRS-CI will continue to rigorously pursue U.S. citizens seeking to evade income taxes by placing assets in other countries,” said Richard Weber, chief of the Internal Revenue Service’s Criminal Investigation Division. The focus so far has been mostly on Switzerland, but the division is beginning to pursue those efforts on a wider scale, he said Oct. 27 at an anti-money laundering conference sponsored by the New York State Society of Certified Public Accountants.
Weber said his division has worked closely with the Department of Justice since DOJ announced its Swiss Bank Program in August 2013 to identify U.S. taxpayers engaging in tax evasion. The program put pressure on banks to turn over information on their U.S. clients. In exchange, they paid penalties but avoided prosecution.
Now, “we’re actually looking at a bunch of other countries where money has been flowing from Switzerland,” Weber said. “We think we’re going to have some significant announcements within the next year.”
Scott D. Michel, a member of Caplin & Drysdale Chartered, noted anecdotal evidence to suggest that those other countries include Israel and parts of Asia.
“We know that there are Israeli banks that have been identified as Category 1 banks, and not all of them have resolved their cases,” said Michel, who advises U.S. citizens living abroad and foreign entities doing business in the U.S. on ways to become compliant. “So I think that is one likely jurisdiction that we may see come into play,” he told Bloomberg BNA Oct. 27. A Category 1 bank is one that is currently under investigation by the DOJ.
Michel said there has also been anecdotal evidence that the Justice Department and the IRS are conducting investigations in Asia. In February, the DOJ filed an action in federal court to compel UBS AG’s branch in Miami to produce bank records of a Singapore account supposedly owned by a taxpayer living in China who is under IRS audit. In a June news release, the department announced that UBS had complied with an IRS summons for those bank records and it was voluntarily dismissing its summons enforcement action against the bank.
The principle source of information that seems to be driving these investigations is the “leaver list” data that Swiss banks supplied as part of their participation in the DOJ program, Michel said. Banks in the program were required to identify all accounts that closed since August 2008 and show all transfers in connection with those account closures, he said. That’s how the DOJ and the IRS are “following the money,” he said.
“There are some very large banks who submitted a great deal of data, and out of those large—and even some smaller—banks, there’s undoubtedly substantial evidence of account holders moving their assets outside Switzerland to other jurisdictions,” Michel said, “some of which may be perceived as so-called ‘tax havens’ and some of which may simply be other countries where family members reside or there are other connections to the account holder.”
Bryan C. Skarlatos, a partner at Kostelanetz & Fink LLP, said the IRS and Justice Department have also obtained a great deal of data and insight from the IRS’s Offshore Voluntary Disclosure Program that began in 2009. An Oct. 21 news release highlighting the success of this program said the agency has pulled in more than $10 billion from its offshore compliance efforts overall, with OVDP being a large contributor.
The agency also mentioned that the OVDP, along with the Foreign Account Tax Compliance Act, which requires financial institutions around the world to report their U.S. account holders, have taught the IRS how to spot avoidance trends. This makes it harder for U.S. taxpayers who are abusing the system to remain undetected.
“The IRS is always beating the bushes to encourage people to come in and make voluntary disclosures,” said Skarlatos, who represents taxpayers who are voluntarily disclosing assets held in offshore bank accounts to the IRS. “They want people to voluntarily self-report, because that’s the basis of the U.S. tax system—self-assessing, self-reporting,” he said Oct. 27.
These types of programs are especially important to the IRS as it faces an ever-shrinking budget, he said. “When you’re in a resource-challenged environment, voluntary disclosure and voluntary compliance become more important than ever,” Skarlatos said.
In his remarks at the conferene, Weber addressed the challenges his division faces with dwindling resources.
“In a world where every other federal law enforcement has seen a modest increase in their budget, IRS-CI has seen a budget cut,” he said. “We’re just not able to focus our time on all of the types of investigations that we should be because of our budget issues and the fact that Congress keeps cutting us year after year after year,” Weber said.
“Our agency relies on funding to hire employees—train and equip them,” he said, adding that his division is losing about 150 agents a year to retirement and this year is only replacing 60 of them. “The numbers are just not there,” he said.
Weber noted that he planned to meet with IRS Commissioner John Koskinen after the conference to discuss a budget issue. “We are fighting for resources,” he said.
Apart from its offshore compliance efforts, other priorities the Criminal Investigation Division will be focusing on over the next few years include cyber crime and illegal activity on the dark web, where Weber said criminals are paying pennies for bulk “personally identifiable information” (PII) that can be used for refund fraud.
“With the ease of obtaining stolen PII from places like the dark net and the ability to attack the financial government systems from anywhere in the world, our efforts have been growing even more challenging,” Weber said.
Cyber crime has evolved from “street-level crime” to a more sophisticated international, criminal organization problem, he said. “A recent investigation specifically traced over $26 million of criminal profit to cash outs occurring in Nigeria, Russia, and other Eastern European countries,” he said.
IRS impersonation crimes also continue to be a concern for IRS-CI. The same day Weber made his remarks, the Justice Department unsealed an indictment charging 61 individuals and entities for alleged participation in an India call center scam that targeted at least 15,000 U.S. victims and led to hundreds of millions in losses.
Weber said he understands taxpayers are concerned with impersonation scams, especially as the IRS prepares to go live with its private debt collection program mandated by Congress in December 2015 legislation. He said he doesn’t have any real answers on how the public will be able to distinguish a private debt collector hired by the IRS from a criminal. “I do think it’s a real risk and a real threat, and one of the reasons why the IRS opposed this legislation,” he said.
Weber noted that impersonation scams aren’t generally under the jurisdiction of the Criminal Investigation Division. The Treasury Inspector General for Tax Administration has primary responsibility over that area, he said. The IRS is taking impersonation risks into consideration as it transitions into the debt-collection program, Weber said.
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