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US Could Introduce New Tax Amnesty

by Mike Godfrey,, Washington

14 December 2010

The Internal Revenue Service (IRS) Commissioner, Doug Shulman, in a recent speech to the 23rd Annual Institute on Current Issues in International Taxation, looked at a number of important developments, affecting both individuals and corporations, in the international tax field.

During his tenure as IRS Commissioner, Shulman believed, “in the individual arena, we have continued to make a significant dent in offshore tax evasion. Many taxpayers who had unreported assets and income overseas have come back into the fold, and taxpayers understand that the risk of being caught hiding assets offshore has increased significantly.”

He referred to the example of the Voluntary Disclosure Programme (VDP), and confirmed that the IRS had had approximately 15,000 voluntary disclosures from individuals who came in before the programme ended last year. In addition, since the VDP programme closed, the IRS has received an additional 3,000 voluntary disclosures from individuals with overseas bank accounts.

Apart from “collecting additional revenue for past misdeeds – as important as that may be – it is equally important,” in his opinion, “that we are bringing 18,000 US taxpayers, and counting, back into compliance, so that they properly report and pay their taxes for years to come.”

Shulman also added that the IRS has been looking at “the vast quantity of data we received from the VDP applicants and from other sources. Although more data mining is still to be done, this information has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world, including Asia and the Middle East.”

Given that the first programme was therefore considered to be a success, he disclosed that the IRS is “seriously considering” another special offshore VDP. However, he said, “there will be some fundamental differences. Taxpayers will not get the same deal as those who came in under the original programme. To be fair to those who came in before the deadline, the penalty – and thus the financial cost to participate – will increase.”

He then moved on to the implementation of the Foreign Account Tax Compliance Act (FATCA) which he called “the most important development in international information reporting in a generation.” It will, he said, “increase information reporting by US taxpayers holding financial assets outside the United States and impose stiff penalties for failure to comply. It will also require reporting of US persons who hold accounts in foreign financial institutions or who own large interests in foreign entities that hold such accounts.”

He believes that “the mere enactment of FATCA should prompt preparers and advisors to expand their due diligence regarding the opening of offshore accounts by US persons attempting to evade US tax obligations.” The IRS has begun the process of FATCA’s implementation, and is in the process of considering stakeholder comments before continuing with the regulatory rulemaking process.

Given the questions they have already received from overseas banks, the IRS is “very interested in devising a process that will be effective and meet the goals of the legislation, but do so in an efficient manner that recognizes the operational considerations of the financial services industry.”

In addition, Shulman looked at how the IRS is working to redefine its relationship with large corporate taxpayers. “The key to the new relationship will be the ability to reduce uncertainty and protracted fighting,” he stated, “and instead be able to resolve issues - including international tax issues - more quickly and efficiently.”

“It’s no secret that multinational corporations engage in sophisticated international tax planning,” he added. “We recognize that much of this is perfectly legal and many businesses are trying to get it right. Of course, some are pushing the envelope too far and it’s here that we have issues. Our goal is to differentiate between the two, and to ensure corporations are compliant with the tax law and stay compliant. Over the past year, we have reorganized and refocused our effort to get to and resolve corporate tax issues quicker.”

He pointed out that one area that called out for continued focus and innovation is transfer pricing. The realignment of the IRS’s international resources in its Large Business & International operating division in August has allowed the staffing of a Transfer Pricing Practice. A transfer pricing pilot programme has begun to identify a number of cases of potentially broad impact and ensured that the right resources are dedicated to their development.

Finally, he mentioned that, through the OECD’s Forum on Tax Administration, the IRS has been considering the possibilities for joint audits. He said that “the joint audit will be more sensible and efficient for the participating business because the business will not have the burden of two exam teams conducting two audits, and it will make sure both countries receive the same information and presentations from the taxpayer.”

“If fully realized, the joint audit could have the potential of both boosting international tax compliance and improving service. In theory, if all the parties were in the same room, two or more tax authorities would hear the same facts, agree on the issues more quickly, jointly characterize a transaction, and agree on a treatment. It could reduce taxpayer burden, especially for large multinational corporations that must face audits in multiple jurisdictions on the same set of transactions.”

TAGS: compliance | tax | tax compliance | law | financial services | corporation tax | Internal Revenue Service (IRS) | offshore | legislation | transfer pricing | United States | penalties | individual income tax | services

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