Saturday, September 29, 2018

TIGTA Report on IRS Compliance Activity Bank Secrecy Act Delegated Authority Other than For FBARs (9/29/18)

TIGTA has issued a report titled "The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance (Ref. Num. 2018-30-071 9/24/18), here.  Although included in the report, the highlights page is here.

The report note (p. 2) that the IRS has delegated authority over the following areas (emphasis supplied by JAT):
1) Enforce the criminal provisions of the BSA as provided in 31 C.F.R. § 1010.810(c)(2). 
2) Examine certain nonbank financial institutions to determine compliance as set forth under Title 31 BSA requirements in December 1992; however, the FinCEN retains the final authority to impose civil penalties.n3
   n3 Originally delegated under Department of the Treasury Directive 15-41, December 1, 1992, and as authorized under 31 C.F.R. § 1010.810(b)(8). This regulation authorizes the IRS to conduct most of its Title 31 BSA examinations, such as those with respect to nonbank financial institutions. It does not authorize the IRS to investigate Report of Foreign Bank and Financial Accounts violations; that authority is found in 31 C.F.R. § 1010.810(g). Also, final authority to assess civil penalties is delegated to the FinCEN per 31 C.F.R. § 1010.810. 
3) Examine and impose civil penalties for the Report of Foreign Bank and Financial
Accounts in April 2003.n4 (TIGTA’s review does not include a review of the Report of Foreign Bank and Financial Accounts program).
   n4 Memorandum of Agreement and Delegation of Authority for Enforcement of FBAR Requirements, April 2, 2003; and as authorized under 31 C.F.R. § 1010.810(g)
Accordingly, per 3), the report does not deal with the IRS's FBAR enforcement which has figured so prominently in this blog.  The report does cover other authorities related to tax crimes.

I cut and paste the highlights page:

Final Report issued on September 24, 2018 
Highlights of Reference Number:  2018-30-071 to the Commissioner of Internal Revenue. 
The Currency and Foreign Transactions Reporting Act of 1970 requires U.S. financial institutions to assist U.S. Government agencies in detecting and preventing money laundering and to assist U.S. persons in reporting foreign bank and financial accounts.  The law has been amended several times and is now known as the Bank Secrecy Act (BSA).  The IRS received delegated authority to enforce the BSA’s criminal provisions and examine certain nonbank financial institutions.  The IRS also has authority to examine trades and businesses for compliance with Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, under Internal Revenue Code Title 26 and 31 and authority to assess penalties under Title 26.  However, the Financial Crimes Enforcement Network (FinCEN) retains the final authority to impose Internal Revenue Code Title 31 civil penalties. 
This audit was initiated to evaluate the impact of the IRS’s compliance efforts related to its delegated authority under the BSA. 
The IRS Small Business/Self-Employed Division conducts BSA compliance activities through its Specialty Examination function, which has a dedicated BSA Program.  TIGTA reviewed a statistically valid random sample of 140 compliance cases from a population of 24,212 closed cases worked by the BSA Program for Fiscal Years 2014 through 2016 and found that 105 (75 percent) were closed with 383 Title 31 violations in which the respective business only received a letter citing the violations found.  For the same fiscal year period, TIGTA found that 1) referrals to the FinCEN of Title 31 penalty cases go through lengthy delays and have little impact on BSA compliance; 2) the BSA Program spent about $97 million to assess approximately $39 million in penalties; and 3) while referrals were made to IRS Criminal Investigation, most of the investigations were declined and less than half of the cases were accepted. 
Additionally, a September 2016 TIGTA report addressed the need for the IRS to incorporate BSA Program personnel in developing its virtual currency strategy; however, the IRS has still not effectively used the BSA Program in this area.  TIGTA also found that until June 2017, the BSA Program did not require Publication 1, Your Rights as a Taxpayer, as a required enclosure to notify taxpayers of their rights when initiating a Form 8300, Title 26 examination, and some examiners still are unaware of the change that requires taxpayers to be notified of their rights. 
TIGTA recommended that the IRS: 1) coordinate with the FinCEN on the authority to assert Title 31 penalties or reprioritize resources to more productive work; 2) leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy; 3) notify examiners of new appointment letter enclosures that includes Publication 1; 4)  evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and 5) improve the process for referrals to IRS Criminal Investigation.  The IRS agreed with four of the five recommendations.  The IRS will incorporate its virtual currency strategy into its Title 31 compliance efforts; provide BSA examiners guidance on appointment letter enclosures; review and improve the FinCEN referral process; and review the BSA criminal referral criteria to maximize efficiency and enhance BSA referrals to Criminal Investigation.  However, the IRS disagreed with pursuing Title 31 penalty authority stating it was outside its purview and that the FinCEN intends to retain this authority.

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