Tuesday, October 2, 2018

NYT Article on Reduced IRS CI Criminal Tax Enforcement (10/2/18)

The New York Times has this article:   Jesse Eisinger and Paul Kiel, I.R.S. Tax Fraud Cases Plummet After Budget Cuts (NYT 10/1/18), here.  The article is quite good as a general discussion of the tax crimes enforcement problems.

I will first summarize some key points of the article and then include some excerpts related to offshore account enforcement that has been prominent source in postings on this blog.

1.  IRS criminal enforcement is way down.  As a result, "Provided you’re not a close associate of President Trump, there may never be a better time to be a tax cheat."  The statistic given is:  "Last year, the I.R.S.’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010."  I have not gotten behind that statistic.  I don't know what 795 cases means.  IRS CI does not bring cases.  DOJ Tax brings the cases (prosecutions).  I infer that the 795 may mean referrals to DOJ Tax.  But, I could not even verify that number.  The IRS does post its CI statistics here which show that the number of Tax Investigations (as opposed to Other Financial Crimes is way down through FY 2016, but the number of prosecution recommendations in tax investigations does not appear to be material down over the time period presented (from FY 2007 to FY 2016).  It is true that the number was higher in the most immediate 5 year period, but was lower most of the years before that.  Although not a direct comparison, I offer a statistics spreadsheet, here, which I maintain based on the IRS data book and the statistics link noted above.  (For those who review this spreadsheet, please review my note at the end of the spreadsheet that I just present the data plus calculated percentages from the data and do not attempt to reconcile the underlying data in the two Tables; also, I would appreciate any thoughts on how these statistics may be reconciled.)

2.  Criminal tax enforcement is central to the IRS's mission and important to encouraging compliance among the whole population of taxpayers.

3.  Criminal tax enforcement has been dramatically reduced by budget cuts and shift in priority of IRS CI.  JAT Note: I thought CI had reduced the shift in priority after the Webster Report in the late 1990s so that IRS could devote more of its limited resources to the type of tax enforcement that would support the general revenue function of the IRS.

4.  The budget constraints have resulted in dramatic reduction of CI special agents and reduction in the pipeline of referrals from civil agents.

5.  The following excerpts relate to offshore accounts:
One tax fraud hotbed that has been a clear priority of both the I.R.S. and the Justice Department is going after money Americans stashed overseas without reporting it to the federal government. But there are clear reasons that Mr. Manafort, who hid his money in places like Cyprus and St. Vincent and the Grenadines, might still have escaped detection. 
* * * * 
For all this success, there has been little change in the amount of wealth stashed overseas. Americans have about $1.2 trillion of personal assets in tax havens, according to data compiled by Gabriel Zucman, an assistant professor of economics at the University of California, Berkeley, and two colleagues. It’s unclear what portion has been disclosed to the I.R.S. 
“What has happened over the last 10 years is real progress,” Dr. Zucman said. “But what the data suggest is that it has not had a dramatic effect on the amount of offshore wealth.” Money has flowed out of Switzerland and into Asian tax havens like Hong Kong and Singapore. 
Moreover, the I.R.S. has made little use of new weapons in the fight against wealth hidden overseas. In 2010, President Barack Obama signed a law that was supposed to provide a crucial tool for government auditors and prosecutors. That law, the Foreign Account Tax Compliance Act, required banks with American account holders to report information to the United States. Like W-2 forms that employers file to tell about their workers, these reports would force account holders to come clean. 
Eight years later, the program is still getting off the ground. Countries around the world have signed agreements, and more than 100,000 foreign banks have sent information to the United States. But “there is no ongoing compliance impact of the FATCA at this time,” according to a report this year by the inspector general for the I.R.S. 
The report found serious problems with the millions of records collected so far. About half, for example, didn’t include identification numbers for the taxpayers, making it difficult to match the accounts with individuals. The I.R.S. hadn’t set up a process for using the records. The agency said it was working on such a system.

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