IRS Closing Overseas Offices – IRS Disconnect Between Civil versus Criminal International Tax Enforcement

Posted on

The IRS announced a few days ago that it will close various “civil-side enforcement” overseas offices.

The IRS Statement is set out in part below:Chart - USCs Who Renounce Compared to LPRs who Abandon

The IRS is planning to close civil-side enforcement offices in Frankfurt, London and Paris this budget year. This is in addition to the closure of the Beijing office earlier this fiscal year. After budget reductions over the last 4 consecutive years, the IRS is forced to make tough choices during this period of fiscal austerity and these closures have relatively little impact on taxpayers and treaty partners. Considering our global mission, technological advances, and budgetary constraints, the Internal Revenue Service is realigning many functions and
positions from foreign-based to US-based.

. . .

IRS remains committed, however, to servicing our expatriate community and meeting our international obligations. We believe these services can be provided by other methods.

IRS will also continue to interact and collaborate with foreign tax authorities directly and through participation in many international forums and organizations, and through bilateral or group projects. This collaboration remains essential in
meeting the challenges of tax administration in a global economy.

This announcement comes on the heals of further comments in December from senior Tax Division/Department of Justice attorneys that offshore tax evasion remains among the highest priority areas for criminal enforcement in 2015.

The closing of IRS offices in important world centers that serve “normal”  international taxpayers, while at the same time another part of the government (Department of Justice) continues to beat the “international tax evasion” drum, continues to send a bit of a mixed message.

In an article I wrote and published back in Jan-Feb 2012 in the International Tax Journal titled Unsettled Future for U.S. Taxpayers Residing Overseas: Mixed Messages from IRS Commissioner vs. Ambassador—Part I, I quoted then Commissioner Shulman from December 15, 2011, and his prepared remarks to the IRS/GWU 24th Annual Institute on Current Issues in International Taxation:

… Before I get to our overall strategic approach to
international issues, let me begin with our multi-
pronged and integrated approach to combating
individual offshore non-compliance and how
we’re turning up the pressure on those not paying
taxes on overseas assets.
Our approach to offshore tax evasion follows a
natural course…cleaning up the abuses of the
past and then mining and leveraging the data we
receive to mount a greater attack on the abuse.
Indeed, we have been scouring the vast quan-
tity of data we received from all of our different
offshore programs and other sources. This data
mining has already proved invaluable in supple-
menting and corroborating prior leads, as well
as developing new leads, involving numerous
banks, advisors and promoters from around the
world. I can tell you that we now have additional
cases and banks in our sights …
People who may consider hiding money offshore
should also take note of ours and the Depart-
ment of Justice’s success record when it comes
to criminal prosecutions. People hiding assets
offshore have received jail sentences running
from months to years, and they have been ordered
to pay hundreds of thousands and even millions
of dollars.
I think it’s fair to say that we are well on our way
to deterring the next generation of taxpayers from
using hidden bank accounts to cheat on their
I would say the IRS has come a long way in these three years since that statement.  There is a better understanding that all U.S. citizens and LPRs residing overseas are not simply trying to evade taxes.  I posed the following questions, in that article, which I think the IRS has taken to heart to try to better understand during these last few years:
When the Commissioner is talking of individual
taxpayers with assets overseas, to whom is he speaking? These comments and views send shivers down the spines of U.S. citizens and lawful permanent residents (LPRs) residing overseas who are not sure what is being
referred to as “hiding assets overseas”? If the individual
has simply not filed U.S. federal income tax returns,
have they committed tax evasion or some other tax
crime? What if the taxpayer has a duty to file a U.S.
federal income tax return, but if he or she did so, would
have no federal income tax owing? Are they “hiding
assets offshore” if they hold accounts, investments or
other assets in the country where they live (i.e., “off- shore”)? When is an individual residing outside the
U.S. even required to file a U.S. federal income tax
returns? These simple questions do not always lend
themselves to easy answers under the law . . .
Indeed, the IRS incorporated terms and concepts into the streamlined procedures, which were modified substantially last year to address even more of these questions.  See, The Risks to USCs and LPRs – Filing Late U.S. Income Tax Returns via the so-called “Streamlined” process

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.