New Teeth in Tax Law Target Offshore Trusts
A
new law spells out penalties for taxpayers who do not report potentially
abusive transactions to offshore bank accounts. At the same time, the IRS
strengthens enforcement.
By Stanley H. Block
For nearly two years, the
Internal Revenue Service has waged an aggressive, concerted war against
the use of offshore trusts.
These offshore accounts, used
by some tax evaders, account for an estimated $6 billion in underreported
income.
Now, the IRS has taken yet
another step in strengthening its offensive against offshore trusts and
tax evaders.
The American Jobs Creation
Act of 2004 created a new penalty for the failure to disclose information
about “reportable transactions,” which are transactions that the U.S.
Treasury Department and IRS have determined to be potentially abusive.
This law is intended to force taxpayers to disclose transactions to
offshore accounts that might be used in tax-evasion schemes.
“Up to this point, there were
no monetary penalties for failing, when required, to disclose these
transactions,” said IRS Commissioner Mark W. Everson in a statement. “This
provision puts teeth in the regulatory scheme.”
The law creates a new penalty
if a taxpayer understates its tax liability relating to a reportable
transaction. A higher penalty will apply if a taxpayer does not adequately
disclose the facts of the reportable transaction. If the taxpayer
discloses the transaction, the penalty may be avoided if the taxpayer had
reasonable cause and acted in good faith.
That’s not all.
These new laws come at a time
when the IRS has stepped up its enforcement to unprecedented levels.
In 2004, the IRS collected a
record $43.1 billion in enforcement revenue — a 15 percent increase over
last year. Enforcement revenue comes directly from IRS audits of
taxpayers.
That’s right — it means the
tax-collecting agency is more aggressive than ever.
Here are some of the numbers
from 2004 audits:
-
Total audits were more than
1 million.
-
Audits of taxpayers earning
more than $100,000 topped 195,000, a 40 percent increase over last year.
-
More than 2 million
taxpayers were levied.
-
Criminal investigations
jumped 20 percent over last year.
IRS Commissioner Everson
believes this aggressive form of tax enforcement will have unquantifiable
aspects as well.
“Increasing audits,
collections and criminal investigations has an impact beyond the direct
enforcement revenues generated,” he said during a recent speech. “When a
doctor, a dentist, a construction worker or anyone else is audited, word
gets around. And some people who might be tempted to play fast and loose
will think twice.”
Is it making you think twice
about your taxes? It should.
Stanley H. Block is a Maryland State Tax
Attorney and a member of the American Society of IRS Problem Solvers. You
can contact him at 410-727-6006 to obtain a free subscription to his newsletter
titled The IRS Times & Inquirer.
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