IRS Commissioner Talks about International Tax Cheats

 

On December 15, before an audience at the IRS/George Washington University Twenty-Fourth Annual Institute on Current Issues in International Taxation, IRS Commissioner, Douglas Shulman, talked about tax cheats in the international arena and how the Internal Revenue Service (IRS) is "turning up the pressure."

 

Shulman said, "I can tell you we have additional cases and banks in our sights." He used the example of a major Swiss bank, which, for the first time, turned over thousands of names and account numbers and agreed to pay hundreds of millions to the U.S. government in a deferred prosecution agreement. 

 

He also noted that a voluntary disclosure program, which ended in September, gave those hiding money in foreign accounts a "tough but fair" way to resolve their tax problems. "Since 2009, voluntary disclosures total 33,000," he said. "While we are not through with the cases, we have already brought billions of dollars into the U.S. Treasury and there is more to come," Shulman said.

 

He also noted that new proposed regulations should be coming out soon after the new year that relate to the Foreign Account Tax Compliance Act (FATCA). He said that since the law was passed, implementation issues have been raised by international banks and financial institutions about conflicts between FATCA and other countries' laws and difficulties in administering withholding requirements. "One goal of these regulations is to address these concerns and provide a way forward to allow responsible corporate citizens to work through these tricky issues in a practical fashion."

 

Shulman also touched on a more collaborative, strategic approach used at the tax agency for complicated international tax issues. 

 

"For example, when a U.S. corporation shifts income to a low-tax jurisdiction, we need to look at the entire structure that was created to accomplish this. We need to understand the overall planning paradigm. . . . What is motivating the company? What are the benefits? What are the most aggressive positions? How are they managing tax exposure? In other words, we have to understand what they are trying to accomplish."

 

He said the agency is establishing internal networks of experts – international examiners, lawyers, economists, and others – to collaborate on the issues. He pointed to the Transfer Pricing Practice as one that had been "a bit scattered," so the IRS created a single program under a single executive. Shulman talked about a successful joint audit with another country of a taxpayer with a transfer pricing issue. In six months, two governments worked together to solve the complex issue, and a transfer pricing methodology was agreed on for future years.

 

He concluded, "Let me end by saying that the way to make everything I have talked about work is to increase the dialogue between the private sector and IRS personnel. We need to spend time understanding your business and business objectives. More robust dialogue is in both of our interests. While this will take investment on both sides, I think it will lead to a healthier U.S. tax system in the long run."

 

Read all of Shulman's remarks.

 

• IRS Commissioner Discusses Challenges of Global Tax Arena
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