Suffice it to say, over the past two years the IRS has made it more of a priority to recoup the money it is owed by individuals and businesses who are not truthfully reporting their earnings. And who can blame them? With the United States debt growing to over $12.5 trillion dollars, it seems only rational for them to continue this trend of coming after money that is owed.
So how is the IRS going about its debt collections?
Overseas Accounts
Based on US pop culture it is easy to think that every rich, James-Bond like American has an account in the Cayman Islands worth millions of dollars. Apparently the IRS has been watching these movies as well, as they are going after these accounts, which number in the tens of thousands. After some strong-arming from the U.S. government in 2009, several traditional countries where secret, tax-evading bank accounts are known to be kept (Switzerland, Liechtenstein and Luxembourg for example) are now going to cooperate more with the United States on identifying the accounts and making sure that the taxes owed on these accounts have been paid. Over 14,700 individuals voluntarily came forward with their overseas account information, and the IRS is currently investigating over 7,000 overseas accounts. Â Also, in a settlement with the giant UBS Swiss bank, the US will be given 4,450 bank account names.
On top of that, the IRS is now expecting more information from individuals with overseas accounts. Individuals are now required to file a revised and stricter Foreign Bank Account Report by June 30 each year if the combined value of all foreign accounts in the previous calendar year exceeded $10,000. If you disclose that you have an overseas account, instead of reporting a vague range of money that is in that account, you now must include an exact dollar amount. Another new rule is that the full address of the bank where the account is held now must be disclosed. For more information on changes to this form, see the Anti-Deferral and Anti-Tax Avoidance information.
Hiring More Employees
The IRS is increasing their manpower in order to catch tax cheaters. In December of 2009, 100 new employees were hired in order to get a new “high wealth unit†within the IRS up and running. The high wealth unit will be focusing on trusts, real estate investments, privately held companies and other business entities controlled by rich individuals in the hopes that by looking holistically at a wealthy individual’s entire asset portfolio, they will find taxes that have not been paid.
Incentives to Snitch on Your Tax-Evading Friends, Family, and Bosses
The IRS paying people who tattle on tax cheaters with evidence is not a new concept, we discussed it previously when readers answered whether or not they report all their income; according to a Forbes article dated December 14th, 2009, from 2004-2005, 428 informants received a total of $12 million for their information that recouped the IRS $168 million. But in the new passing of the Tax Relief and Health Care Act in 2006 (effective 2008), the IRS upped the ante by paying between 15%-30% to people who tip-off tax cheaters for cases of $2 million plus. While no funds have yet been paid, many cases are in the works.
I thought only people who owned yachts and collected ransoms had oversees accounts. Interesting read.
Laura Pagles
@fatwallet
I currently live in one of the “tax cheater” countries listed above and am working on the implementation of the new rules (I work for a CPA firm and am a US citizen) for clients. We are already seeing that these rules will make it even more difficult for US citizens to get an overseas bank account (and more difficult for non-US persons to invest in the US or US companies). And if you think it was not difficult before, I only got a non-interest bearing bank account here because the firm I work for has a deal worked out with my bank to accept its employess no matter of nationality. Otherwise, it would have been very difficult to get an account. And I doubt I could get an investment account there.
Ironically, 10 minutes before reading this I had a pro vs con discussion on US citizenship with a non-US colleague moving to the US to work for the next few years. He and his wife may have a child while there and that child will automatically be a US citizen if born there. If that child never returns to the US the child will still be technically required to file US tax returns for the rest of its life unless it renounces US citizenship (and not just a simple 1040EZ either). In addition, the child will have difficulties opening bank accounts and investment accounts in Europe due to this law and their American citizenship.
While I understand the need for the law, it is also making it harder for Americans abroad and is adds to the list of reasons why many people do not like Americans. Take the good with the bad I guess.
I think people are either afraid of the tax code or just fed up with it. Its amazing that there was no tax code before 1913, and when it was written it was 13 pages long.
Someone suggested to me the other day that the US could save a lot of money and start paying off the massive debt by eliminating income taxes, the tax code, and the IRS – and adopting higher sales taxes. It seems like a trade off but at least people would understand it more easily than the current system, and we wouldn’t waste time with the filing and interpretation of the rules.
As a financial advisor, one simple yet underused idea to reduce future taxes is the Roth IRA. A Roth will not be taxed for future withdrawals. This year you can convert your IRA to a Roth and spread the taxes over 2 years.
My new book, “Help! My 401(k) Has Fallen – And Must Get Up!” is due out next month. It offers simple solutions to help people get their 401(k) or IRA back on its feet.