IRS Is Building “Elite Division” to Audit Taxpayers With Offshore Accounts

IRS Corporate Audit Division Will Examine UBS Tax Evasion Cases
Share | Email | Print | A A A

By Ryan J. Donmoyer

Sept. 1 (Bloomberg) — The U.S. Internal Revenue Service is shifting audits of wealthy Americans suspected of offshore tax evasion to an elite division that usually examines businesses as it prepares to receive data on 4,450 UBS AG Swiss bank accounts.

The tax agency posted internal job listings yesterday seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will be tasked with monitoring what it called the “global high-wealth industry.”

The move centralizes responsibility for auditing wealthy individuals suspected of offshore tax evasion in a unit with the most experience navigating international tax treaties and untangling complex cross-border business structures.

“That’s where the most sophistication is at IRS,” said Michael Murphy, a former deputy IRS commissioner who is now a consultant for the law firm Sutherland Asbill & Brennan LLP in Washington.

Responsibility for auditing wealthy individuals is currently split among IRS divisions devoted to small businesses and self-employed wage earners and investors, which don’t have as much experience in cross-border transactions, Murphy said.

The IRS says it anticipates handling up to 10,000 new cases related to UBS, including thousands of people who come forward voluntarily in exchange for reduced penalties before Sept. 23.

52,000 Accounts

UBS agreed Aug. 19 to hand over the account information to settle a U.S. lawsuit seeking the names of Americans suspected of evading taxes through 52,000 Swiss accounts. The bank will give the material to the Swiss government, which will then determine how much will go to the IRS.

The new global high-wealth industry sector will be one of six industry-specific offices within the IRS’s Large and Mid- Size Business division. Other industry sectors focus on financial services; retailers, food, pharmaceuticals and health care; natural resources and construction; communications, technology and media; and heavy manufacturing and transportation.

“The establishment of this group is a step in our ongoing effort to align our resources around our long-term enforcement strategy,” IRS spokesman Frank Keith said. “The new group will focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment.”

Murphy said the IRS’s business auditing division is better equipped to handle the complexities of offshore bank accounts that often are linked to a labyrinth of dummy corporations, partnerships and other foreign entities designed to hide account holders’ identities from the authorities.

Tax Treaties

The Large and Mid-Size Business division has more experience in dealing with violations of tax treaties, better access to data gained from information-exchange agreements, and an embedded legal organization, Murphy said.

“You’re going to marshal your tax resources that are most experienced in dealing with global entities,” Murphy said.

IRS Commissioner Doug Shulman said Aug. 19 that the 4,450 accounts that will be turned over by UBS at one point held $18 billion and included a range of securities, commodities and cash.

It will take up to a year for the Swiss government to decide whether to give the information to the IRS, and UBS clients will be allowed to appeal the determination.

Switzerland said it received a formal request for the accounts from the IRS. The Swiss authorities now have 90 days to decide whether they can pass on details on the first 500 accounts to the U.S., according to a statement on the Federal Tax Administration’s Web site in Zurich. The remaining accounts have to be processed within a year.

Right to Appeal

UBS will inform affected customers they have a right under Swiss law to appeal to the Swiss Federal Administrative Court to keep their accounts secret. The account holders also will be told they are required by U.S. law to notify the Justice Department of any appeal.

It is legal for Americans to have offshore bank accounts, so long as they declare the accounts to the Treasury Department and pay taxes on any earnings.

The IRS, meanwhile, is seeking additional resources from Congress to beef up its enforcement of tax rules governing cross-border financial transactions.

The House last month approved the hiring of 784 new fulltime IRS workers at a cost of $128.1 million. The measure is awaiting action in the Senate.

The expanded workforce would include 109 employees to investigate U.S. taxpayers with offshore activities and 113 to audit smaller international businesses. None would be fully trained until 2012.

Managing Information

Frank Ng, who left the IRS as head of the Large and Mid- Size Business division to join the accounting firm Ernst & Young LLP this month, said shifting responsibility for the UBS cases to his former division signals the IRS is searching for ways to best manage the flow of information from UBS and related cases.

“It’s more a way of coordinating the issues and inventory around that segment of taxpayers,” Ng said. “In the end, it’s probably more efficient.”

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Explore posts in the same categories: Tax