IRS Shifts Focus of Compliance Enforcement from Working-Class to Wealthy Taxpayers
The Internal Revenue Service (IRS) has announced that it is shifting its focus on compliance enforcement from working-class taxpayers to wealthy taxpayers. This decision is an effort to close the tax gap, which is the difference between the amount of taxes that are owed and the amount of taxes that are actually paid.
The IRS is particularly focused on enforcing the Foreign Account Tax Compliance Act (FATCA), which requires U.S. taxpayers to report foreign bank and financial accounts (FBAR) with balances over $10,000.
The IRS is using a variety of tools to enforce the FBAR, including:
• Data matching: The IRS is matching FBAR data with other data sources, such as bank account records and travel records.
• Information sharing: The IRS is sharing FBAR data with other government agencies, such as the Department of Justice and the Securities and Exchange Commission.
• Audits: The IRS is conducting audits of taxpayers who have not filed FBARs or who have filed FBARs that are incomplete or inaccurate.
The IRS also uses artificial intelligence (AI) to help enforce the FBAR. AI can be used to identify patterns of suspicious activity, such as large cash deposits or frequent wire transfers to foreign accounts.
The IRS’s new focus on wealthy taxpayers and the FBAR is a significant change. It remains to be seen how effective this new approach will be in closing the tax gap; however, it is clear that the IRS is taking a more aggressive stance in its enforcement efforts.
Here are some tips for taxpayers who have foreign financial accounts:
• File an FBAR if you have foreign financial accounts with balances over $10,000.
• Be sure to report all your foreign financial accounts, including bank accounts, brokerage accounts, and investment accounts.
• Keep accurate records of your foreign financial accounts.
• If you are audited by the IRS, be prepared to provide documentation of your foreign financial accounts.
For any questions on compliance enforcement or guidance on our international tax services, please contact our Global Business Services team.
John Bodur, MBA is a Senior Tax Consultant in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.