Many countries are waking up to the fact that offshore structures, financial instruments, cryptocurrency and other advances in technology, when inappropriately used, are fast outwitting their tax collectors. This wake-up was eventually accompanied by the realization that there is more power in collaboration and in numbers.
Who or What is the “J5”?
The “Organization for Economic Cooperation and Development” (“OECD”) recently made a call to action for countries to do more to tackle tax crime together. On July 2, five countries answered the wake-up call: Australia, Canada, the Netherlands, the United Kingdom, and the United States. Calling themselves the “Joint Chiefs of Global Tax Enforcement”, or the “J5”, for short, this international coalition is committed to combatting transnational tax crime through increased collaboration. The key for J5 is to work together to gather information, share intelligence, to conduct operations and to build the capacity of tax crime enforcement officials. The J5 will also work with the OECD, other countries and organizations whenever it is needed or appropriate.
Don Fort, Chief of IRS-Criminal Investigation stated: “We cannot continue to operate in the same ways we have in the past, siloing our information from the rest of the world while organized criminals and tax cheats manipulate the system and exploit vulnerabilities for their personal gain. The J5 aims to break down those walls, build upon individual best practices, and become an operational group that is forward-thinking and can pressurize the global criminal community in ways we could not achieve on our own.”
On the same day as the J5 announcement, July 2, 2018, the US Internal Revenue Service (IRS) announced the approval of five additional compliance “campaigns”. Two of these specifically address international tax matters, and a third involves virtual currency transactions (frequently used in the international world). This July 2 campaign announcement followed abruptly on the heels of the IRS’ previous announcement in May of the rollout of six additional compliance campaigns. Five of these six campaigns targeted “foreign” tax areas and international individual tax compliance. You can learn more about the IRS’ use of its new “campaign” audit strategy at my blog post here.
Did we need any more proof that the United States has made “international” one of its top targets for tax enforcement? International is clearly the IRS “hot spot” with the noose continuing to tighten for taxpayers who are delinquent or non-compliant with respect to foreign income or assets. Certainly not everyone with tax noncompliance issues is a tax cheat. Despite this, however, it is clear that the “international” hunt is really, really on. With the J5 coalition and the numerous IRS international “campaigns” in place, the chances of getting caught have increased substantially. Hand-in-hand with getting caught is the imposition of tax penalties, which even if “only” civil, can be very hefty. Getting caught may also mean denial by the IRS of an expatriate’s ability to utilize the foreign earned income and housing exclusion benefits, meaning tax can be asserted on that compensation income that the expat thought was not going to be taxed.
With the imminent closure of OVDP and the courts making it easier and easier for the IRS to succeed on a “willful” argument, taxpayers who have remained tax noncompliant need to take the appropriate action to avoid the hot seat. What such action may be for different taxpayers will depend entirely on his or her specific facts. Taxpayers should not feel pressured to race into OVDP, but with the latest developments, it is more dangerous to do absolutely nothing.
Added to the tax danger is the risk of losing one’s US passport due to “seriously delinquent” tax debt. A major concern for taxpayers living and working abroad is that the IRS may not have the current address to which it can send the taxpayer notice of the IRS certification of the tax debt. As a result, the tax debt will continue to grow due to interest and penalties and travel plans may be thrown into unexpected chaos once the taxpayer applies for, or tries to renew, his passport. (Revocation of current passports has not yet commenced, but is the next phase in the IRS program).
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 OVDP or Streamlined procedures.
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