IRS Announces Plan to Share Tax Data with Brits and Aussies

By Ken Berry

It's not related to global warming, but countries around the world continue to turn up the heat on scofflaws hiding income from offshore accounts. In the latest development, the United States, Australia, and the United Kingdom have announced a collaborative effort to share tax information from a multitude of trusts and companies holding assets on behalf of residents from far-flung places (IR-2013-48, May 9, 2013).
According to the IRS news release, each of the three nations has acquired a substantial amount of data revealing extensive use of entities organized in various jurisdictions, including Singapore, the British Virgin Islands, the Cayman Islands, and the Cook Islands. The data not only contains the identities of the individual owners of the entities, but also the advisors who assisted in establishing these structures.
The tax collection agencies – the IRS, the Australian Taxation Office, and HM Revenue & Customs, respectively – have been working together to analyze this data. They've also pinpointed information that could be relevant to tax administrations of other jurisdictions.
"This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion," said IRS Acting Commissioner Steven Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes."
However, although the three countries have developed a plan for sharing the data as well as their preliminary analysis with other tax administrations, they haven't revealed any details on how the plan will actually work, according to Kevin Packman a partner with Holland & Knight, who was interviewed by AccountingWEB. Packman is a member of the firm's International Estate Planning Group and also chairs its Offshore Compliance Team. He believes the plan will operate similar to the approach used in tax treaties or the Foreign Account Tax Compliance Act (FATCA). Under FATCA, US taxpayers with specified foreign financial assets exceeding certain thresholds must report those assets to the IRS.
Packman is careful to point out that it's not illegal for US taxpayers to hold assets in foreign accounts. The collaborative effort is designed to ferret out only those individuals who, either purposely or unintentionally, fail to report income on a worldwide basis or don't meet filing requirements.

Be Vigilant in Tax Compliance

In light of the new agreement between the three nations, Kevin Packman advises tax practitioners to be on their guard. Here are some of his suggestions:

  • You can no longer take the view that filing domestic Form 1040s is sufficient. More information is needed from your clients.
  • Have clients properly report all their foreign holdings.
  • Pay closer attention to gifts made to US taxpayers from family members abroad.
  • Taxpayers embroiled in disputes may take advantage of the Offshore Voluntary Disclosure Program or other options.
The noose is slowly tightening around tax evaders. "Effective January 1, all foreign institutions are required to provide information on US account holders," says Packman, referring to the extended reach of FATCA. "They will also examine look-through entities." He notes that the tax evaders may use various means, including insurance products, for dodging the full amount of tax they're legally obligated to pay.
"Another key aspect is whistleblowers," notes Packman. "Bradley Birkenfeld is probably the most notable. That actually started the process where we are today." Packman states that whistleblower activities have enabled the government to "collect $5 billion from thirty to forty thousand taxpayers."
Finally, Packman mentioned an international consortium that has collected a "treasure trove" of information about prominent individuals around the world. Not all the names on the list are tax evaders, he says, but the data is proving to be valuable in hunting down the cheaters.
US taxpayers holding assets in offshore entities are encouraged to review their tax obligations with respect to foreign holdings. When appropriate, they may participate in the IRS Offshore Voluntary Disclosure Program. Failure to do so may result in significant penalties and possible criminal prosecution. In any event, these taxpayers should seek professional guidance.
Related articles:

You may like these other stories...

Starting in January 2015, the IRS will limit the number of refunds that are electronically deposited into a single financial account or pre-paid debit card to three, as part of the agency’s effort to crack down on...
House proposes $10.5B, eight-month highway billThe House Ways and Means Committee proposed a transportation funding bill on Tuesday that calls for a temporary extension of current transportation funding levels until May 31,...
Swiss banks threaten freeze on US accounts over tax evasionJames Shotter of the Financial Times reported on Monday that several Swiss banks have threatened to freeze American clients’ accounts unless they prove they...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.