The just passed budget deal known as Consolidated and Further Continuing Appropriations Act, 2015 contains a reduction in funding for the IRS. The Bill provides a reduction in total IRS funding of $346 million less than last fiscal year.
“Internal Revenue Service (IRS): Failing to collect what taxpayers owe leaves the federal budget short about $345 billion per year, primarily due to under reported income. The IRS needs resources to provide timely responses to millions of taxpayers who seek assistance, acquire better tools to identify unreported income, pursue tax cheats, execute ever-expanding responsibilities under the tax code and improve collection rates to narrow the tax gap. The agreement provides $10.945 billion, $346 million less than fiscal year 2014 funding, for the IRS.”
However, the impact of the budget reduction on international tax enforcement programs remains to be seen. In a recent program the IRS Commissioner is, according to Daily Tax Notes, reported to have stated that there are now 120,000 foreign financial institutions that have entered into information exchange agreements under the Foreign Account Tax Compliance Act (FATCA).
“The IRS has registered more than 120,000 foreign financial institutions under FATCA, Koskinen said. “We are on track to actually accept [FATCA] information, we’re building the platforms to use it, we’re dealing with, OK, now what are we going to do with it,” he said”
Many taxpayers are receiving letter from their financial institutions which request that the taxpayer complete a compliance questionnaire and an IRS Form W-9. The failure to complete the questionnaire and Form W-9 or prove exemption will compel the financial institution to withhold thirty percent (30%) of the account earnings and report the taxpayer to the IRS as recalcitrant likely leading to a “willfulness” determination by the IRS and Department of Justice. Many of these same taxpayers have failed to file a Report of Foreign Financial Account (FBAR) and report their offshore income. The fact that 120,000 foreign financial institutions have entered into FATCA agreements means that these taxpayers are likely to face rigorous enforcement proceedings.
Enforcement can range from criminal prosecution under the Bank Secrecy Act, (which covers failure to file FBAR’s) and under the Internal Revenue Code (which covers failure to file and failure to pay taxes) to civil penalties under both statues. Civil FBAR penalties for “willful” violations are the greater of $100,000 or fifty percent (50%) or the highest account balance per account per year for up to six (6) years. Civil tax penalties for unreported income are seventy-five percent (75%) of the tax. But, there are still methods to come forward.
Taxpayers who qualify may come forward through the Streamline Procedures or Offshore Voluntary Disclosure Program. We can help determine which program is most appropriate for any particular taxpayer. The key is that complaince is now an urgent and unavoidable necessity. Too many taxpayers value money over everything else and live in the hope that they will not be discovered. To them I recall the words of P.T. Barnum
“Money is in some respects life’s fire: it is a very excellent servant, but a terrible master.”