Janathan Allen Has been published in a recent edition of “The American,” a UK publication for US Expats.
In a recent issue published by the US Internal Revenue Service (IRS) #IR-2023-126 the agency has provided notice of two important areas of focus going forward: “Ensuring high-income taxpayers pay taxes owed” and “Cracking down on millionaire non-filers” in order to support this goal.
The IRS is specifically targeting high-income taxpayers and the collection of “unpaid” taxes. The agency referred to the budget cuts it has been forced to undertake over the past decade and the impact this has had on the ability of the IRS to track and develop effective counter-measures to pierce the “complicated set of tools” deployed by high-income US taxpayers to hide taxable US income and pay associated taxes. The agency warns that the IRS is “taking swift and aggressive action to close this gap.”
The immediate take-away is this: If a US taxpayer believes they are effectively shielding taxable income from US income taxes the IRS is not only targeting you, they are working to strengthen their ability to identify loopholes and strategies designed to hide or secret away income from the agency. The Criminal Investigation Unit of the IRS has posted recent victories against wealthy US taxpayers resulting in prison sentences for tax evasion, money laundering and filing false US tax returns.
One example involved more than 100 cases of high-income US taxpayers by claiming benefits (and therefore hiding taxable income) in Puerto Rico and Malta without meeting issues such as residency as well as “source rules” involving US assets, possessions and associated income. US taxpayers have attempted to hide income through personal retirement and pension “schemes.” The agency points to international treaties and FATCA-related reporting regulations which provide access to taxpayer accounts and associated activities in efforts to secret income and avoid taxation.
The agency is pursuing criminal charges associated with these actions as well as restitution. One case noted by the IRS involved a single individual whose restitution bill exceeded $6 Million.
Interestingly, the agency pointed to another significant group of “millionaire non-filers” who simply do not file tax returns. The IRS believes there is a significant number of US taxpayers who attempt to use taxable income to make expensive acquisitions including real estate and expensive automobiles and “lavish” purchases.
The agency is not only working to strengthen the laws and regulations which allow the IRS to access personal and professional banking and investment accounts, but the acquisitions made by these individuals as well. The agency believes the investigation of acquisitions provides additional valuable evidence on the generation of taxable income which is omitted from US tax returns as well as cases where returns are simply not filed.
The agency is focused upon “modernizing decades-old technology” to assist in investigations while protecting the information of US taxpayers and improving customer service at the IRS. The IRS continues to focus upon the collection of taxes from high-income US taxpayers and those who fail to file a US tax return regardless of where the taxpayer may reside or invest. The updated technology will allow the IRS to identify and target US taxpayers with international holdings as well as those who make substantial acquisitions around the world.
It is important to note that US citizens are taxed on all income worldwide. While the US is one of the only countries in the world to classify income anywhere in the world as taxable income to their citizens, a growing number of nations around the world are modeling the US approach in an attempt to increase tax revenue.
Forewarned is forearmed. Are you a target of these aggressive new IRS strategies?
If you are a US citizen who lives and works outside of the United States, or who has investment, bank accounts (business or personal) or real estate holdings outside of the US it is important to work with legal, financial and tax experts who provide sound advice and counsel on how to protect those assets while working within the complex IRS tax codes to avoid substantial financial restitutions and the potential for criminal tax evasion exposures.
