Page 2 - International Enforcement: What’s Old, What’s New and What We Can Expect

InTernATIonAl enForCemenT: WhAT’S olD, WhAT’S neW AnD WhAT We CAn expeCT

From FY 2013 through FY 2017, IRS CI recommended assets. According to CI, “there have already been hundreds
982 international tax prosecutions (6% of total prosecu- of data exchanges between J5 partner agencies with more
tion recommendations), including charges brought against data being exchanged in the [first year of the J5] than the
21 foreign financial institutions. previous 10 years combined.” 1
CI’s international enforcement efforts are aided by its The most notable international cases include the pros-
National Coordinated Investigations Unit (“NCIU”) and ecutions and guilty pleas of Credit Suisse and Wegelin
International Tax Enforcement Group (“ITEG”), initia- Bank, the deferred prosecutions of UBS, Bank Leumi,
tives established in 2017 under the leadership of CI Chief Bank Julius Baer, and Mizrahi-Tefahot Bank Ltd., and
Fort. The NCIU was designed to develop and utilize data the prosecution of enablers, including John Ivsan, who
gathered by IRS business operating divisions (i.e., Exam, was ultimately sentenced to 72 months in prison and
Field Collection, etc.) to identify areas of non-compliance ordered to pay $183 million in restitution to the IRS for
and to assist in coordinating investigations at a national an abusive tax scheme.
level. The initial areas of concentration included interna- On the civil front, the IRS continues to pursue exami-
tional tax enforcement, employment tax enforcement, and nations of U.S. taxpayers with unreported international
microcap stock fraud. The results of these efforts have been income, financial assets, and entities. Since 2017, IRS
characterized by CI leadership as “must work” referrals. In Large Business and International Division (“LBI”) has
FY 2019, the NCIU initiated 106 referrals, covering all announced approximately 60 campaigns, nearly half of
CI field offices, and established a goal of more than 100 which are international focused, to address specific areas
high impact cases for FY 2020. of noncompliance. To gather information during audits
The ITEG, now titled the International Tax & Financial involving international matters, revenue agents issue
Crimes Group (“ITFC”), consists of CI special agents with detailed Information Document Requests and, when neces-
subject matter expertise in international enforcement. sary, administrative summonses, as well as specific treaty
Based in Washington, D.C., the ITFC uses data analyt- requests through the U.S. Competent Authority. The IRS
ics to pure investigations arising from the information also works closely with its partners in the DOJ Tax Division
gathered from various sources, including but not limited to obtain authorization from U.S. District Courts to issue
to the IRS Offshore Voluntary Disclosure Programs, John Doe summonses seeking information regarding a
the DOJ Swiss Bank Program, the Foreign Account Tax specific, unidentified person, ascertainable group, or class
Compliance Act (FATCA), cooperators in pending crimi- of persons where the IRS has a reasonable basis to believe
nal investigations, and whistleblowers. ITFC’s areas of that such person(s) failed to comply with U.S. tax laws and
emphasis include: (i) the investigation of U.S. expatriates the IRS can establish that the information sought is not
residing in foreign jurisdictions who willfully filed false available from another readily available source. 2
renunciation statements and applications for economic These audits can result in substantial civil penalties
citizenship through the EB-5 program; (ii) continued for noncompliance. Under the Internal Revenue Code,
investigation of U.S. taxpayers using foreign abusive trusts, taxpayers can be assessed with civil penalties for failing to
companies, accounts, transactions and structures to evade report various interests and transactions, such ownership
U.S. tax and reporting obligations; and (iii) entities and of specified foreign financial assets (Form 8938), owner-
individuals engaging in schemes to evade FATCA report- ship of, control over, or transactions with respect to foreign
ing requirements. entities (Forms 5471, 8858, 8865, or 926), foreign own-
In July 2018, CI joined tax enforcement authorities ership of U.S. companies (Form 5472), ownership of or
in Australia, Canada, the Netherlands, and the United transactions with foreign trusts (Forms 3520-A and 3520),
Kingdom to establish the J5, designed to increase collabo- and receipt of foreign gifts or inheritances (Form 3520).
ration in combatting international and transnational tax In addition, U.S. persons face enormous civil penalties for
crime and money laundering. The J5 shares information failure to file, or filing false, Reports of Foreign Bank and
and intelligence within existing treaties and laws to iden- Financial Accounts (FBARs) under the Bank Secrecy Act
tify opportunities to pursue those engaging in and facili- (Title 31 of the U.S. Code), the enforcement of which
tating criminal conduct, enhance enforcement tools, and has been delegated to the IRS. These penalties can equal
conduct joint operations. By the end of its first year, the J5 up to the greater of $100,000 or 50% of the value of the
was involved in more than 50 sophisticated international unreported account as of the date of violation. 3
investigations involving individuals and entities, includ- With this potential exposure, taxpayers seeking to avoid
ing one global financial institution and its intermediaries draconian civil penalties and potential criminal investi-
suspected of enabling taxpayers to hide their income and gation and prosecution are considering the relief offered

50 JOURNAL OF TAX PRACTICE & PROCEDURE SPRING 2020