Rich Americans may soon find it more difficult to stash cash in the Cayman Island or Swiss bank accounts to avoid paying taxes. A new law gives the Internal Revenue Service the authority to create a computer system that can match reported foreign assets against income data sent to the IRS by foreign governments, a report by the Government Accountability Office says.
A law signed by President Barack Obama in March requires taxpayers with over $50,000 in foreign assets to file a disclosure statement with the IRS.
Under old rules, only taxpayers with foreign bank accounts worth more than $10,000 had to file a Report of Foreign Banks and Financial Accounts, or FBAR for short, and that information was not permitted to be verified against tax returns due to privacy concerns. But the disclosure statement created by the new law does not have that restriction, the GAO said.
“This change will allow the IRS to use its full complement of tools to verify the information or lack of information filed,” the GAO report said. “This authority should allow the IRS to develop a matching system where it can verify the [disclosure statement] data against the Automatic Exchange Information Program data to identify undisclosed accounts or assets.” Under the Automatic Exchange Information Program, foreign countries with U.S. tax treaties send income earned in that country by an individual with a U.S. address to the IRS.
However, since both the new disclosure statement and the FBAR filings are self-reported, the IRS still lacks “an established method to estimate the potential population of required filers,” the GAO noted.
From 2004 to 2009, the IRS increased FBAR examinations, a tool to combat white-collar crime, by 96 percent while penalties collected annually grew from $1.8 million to $9.8 million.
FAST FACT: Due to the attempted misuse of the IRS during the Watergate scandal, government reforms in 1976 restricted access to tax return information and made it harder for the IRS to enforce FBAR compliance.
Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.
- The Pentagon is not maintaining an inventory of all its public web sites as required by law, and some 791 web sites identified as publicly accessible were either password-protected or didn’t exist. (OIG)
- Improving the capture of natural gas produced on federal lands could boost royalty payments to the government by about $23 million annually and cut greenhouse gas emissions by about 16.5 million metric tons of carbon dioxide, the annual equivalent of exhaust from about 3.1 million cars. (GAO)
- Oil shale deposits in Colorado and Utah could produce 3 trillion barrels of oil and generate significant government revenue, but questions remain regarding how to extract the oil, the amount of water needed, and the burden placed on local water sources. (GAO)