Newest Targets: “Enablers” and “Cryptocurrencies”

Over the summer, I blogged about the newly formed “Joint Chiefs of Global Tax Enforcement”, or the “J5”, for short.  Five countries form this international coalition: Australia, Canada, the Netherlands, the United Kingdom, and the United States.   The goal of the J5 is to combat transnational tax crime through increased collaboration; in other words, these countries will work together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials.  It’s clear that in order to keep up with tax enforcement, countries can no longer work in isolation – with the rise in all things digital, the capacity for tax evasion and money laundering has increased exponentially.  J5 is just the start of bigger things to come.

“Enablers” Beware!

While details are scant at the moment, the Internal Revenue Service (IRS) explained just last week that the J5 countries are focusing on 2 main targets. High on the hunt list are the “professional enablers” —  those who enable transnational  tax crime and money laundering and those who benefit from it.  The J5 collaborative efforts will be making the most of shared data and technology and one country in the group, the UK,  has already launched over 200 criminal investigations into “enablers” of tax evasion schemes.

Cryptocurrency – A Riddle, Wrapped in Mystery, Inside an Enigma

Another area which will feel the J5 heat is that of cryptocurrencies and cybercrime.  Don Fort, Chief of IRS-Criminal Investigation emphasized the tax evasion risks associated with cryptocurrency stating that “digital money can be used to transfer funds to people without the need for foreign bank accounts”.   (Mr. FBAR must be reeling!).   The IRS is focusing on the activities of cryptocurrency exchanges and financial firms when they withdraw digital money, and later convert it into “fiat” currencies.  (A “fiat” currency is not backed by gold or other reserves; instead its value is established by the government which backs it as money. The US dollar is a fiat currency based on the US government’s mandate that the paper currency it prints is legal tender for making financial transactions.  Fiat currencies, like the US dollar, are backed by the full faith and credit of the government that issues it.).

On top of the J5, IRS keeps adding offshore initiatives to its compliance “campaigns”. The IRS announced 5 new “campaigns” at the end of October. Of these, three campaigns involve foreign tax matters generally: Individual Foreign Tax Credit, FATCA Filing Accuracy, and 1120-F Delinquent Returns; two specifically target offshore activities – the Offshore Service Providers Campaign and the FATCA Filing Accuracy Campaign. Cross-border transactions are clearly a prime area of the IRS campaigns and include the OVDP Declines-Withdrawals Campaign, here; the Swiss Bank Program Campaign, here; and virtual currency here.

Many of my readers are aware that for the past few years, the IRS has been shifting to a new audit strategy using these “campaigns.” This shift in focus concentrates on examining tax issues that will have the broadest impact on tax compliance while making the most efficient use of IRS’ dwindling resources. You can read more about the development and evolution of this “campaign” strategy in the September 14, 2016 report issued by the Treasury Inspector General for Tax Administration. Full details from the IRS tracking the development of its “campaigns” is here.

Time to Take Action

With the recent closure of the IRS Offshore Voluntary Disclosure Program (OVDP) and the courts making it easier and easier for the IRS to succeed on a “willful” argument, taxpayers with offshore tax noncompliance skeletons in their closet, need to take appropriate action.  What such action may be for different taxpayers will depend entirely on his or her specific facts.  Doing absolutely nothing is a dangerous game, especially now that losing one’s US passport due to “seriously delinquent” tax debt is a real possibility.

Taxpayers who have a shot at using the IRS Streamlined Offshore Procedure (in which for certain taxpayers, all penalties might be abated), should be taking action now before that program is also shut down by the IRS or they are detected as noncompliant by the “J5” or one of the IRS “campaigns”.  If the IRS is already investigating you, it is not possible to use the Streamlined procedures.

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Posted November 19, 2018