A 2008 Senate report estimated the costs of non-compliance by taxpayers using offshore bank accounts to be at least $100 billion annually.
To combat this, the Internal Revenue Service has initiated several voluntary compliance programs in addition to negotiating the release of information from a number of banks.
The 2009 and 2011 offshore voluntary disclosure initiative programs were hugely successful, both in terms of the number of people coming forward and the amount of dollars collected. However, some suggested that this was only the tip of the iceberg, and that there are thousands more waiting to be discovered. In a recent conversation with IRS Commissioner Doug Shulman, I asked him if he believes there are a significant number that haven’t yet come forward, and whether he has the plans and the resources to pursue them. His answer is instructive, and reflects the success of the program not only in initial amounts that it collects, but in changing the long-term behavior of those who otherwise might be tempted to cheat.
“A major focus of mine has been making sure we’re up to the task of tax administration in a global economy and a global world. One of the key components has been combating offshore tax evasion,” he said.
“We’ve been very successful in our enforcement activities, piercing the veil of bank secrecy for the first time in some key jurisdictions,” he added. “We’ve been getting better and better over the last several years at finding people who are hiding assets overseas, and pursuing banks, promoters and advisors who facilitate evasion. We’ve had very close cooperation with foreign governments, and have increased the flow of information and communication to help crack down globally on offshore tax evasion. As you mentioned, while we were cracking down we also gave people a chance who wanted to come in, pay their back taxes, pay a very stiff penalty but avoid going to jail. And the numbers are now well over 30,000 people who have come in.”
“For me the big deal about this effort isn’t about those 30,000 people or the successful enforcement effort, it’s about changing the risk calculus for the long term,” Shulman continued.
“I think individuals who would have thought about hiding assets overseas really understand today that that’s not a wise thing to do,” he noted. “Advisers are much less willing to facilitate it, banks are much less willing to take deposits, and so I think we’ve changed the risk calculus, which leads to long-term compliance which is our goal. Your specific question about are there other people, of course there are others out there, but I would tell you I don’t think it’s very wise for them to be out there because their chances of getting caught are exponentially higher today than they were just several years ago.”
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