Jerry Lucente is a Small Business/Self Employed Territory Manager with the North Atlantic Region of IRS, which includes the six New England states, New York and New Jersey. He is responsible for four groups at IRS that comprise about 100 employees. On Tuesday, December 15, 2015, Jerry spoke informally at an open meeting of the Federal Tax Committee of the Massachusetts Society of CPAs. At this meeting he announced his upcoming retirement after 42 years of dedicated service. Here are some of the important matters which he disclosed. We have supplemented his remarks with some Internet research, referred to as “published statistics.”
IRS Experiences Reduction in Force and Audits
Over the past few years, IRS has lost about 5,000 IRS agents and Revenue Officers. This reduction in force has resulted in significantly fewer audits. According to published information, IRS anticipates that it will conduct only about 1 million audits in 2015, down from 1.4 million in 2013 and 1.2 million in 2014 – that’s a 28.5 percent reduction in audits over the past 2 years. Published information also indicates that there were 19 percent fewer criminal investigations than in 2013.
Current Audit Targets
Given the reduction in force and significantly fewer audits, IRS has tried to focus its audits to “where the money is.” According to Jerry, there are two main targets:
- The first target is high income and high wealth taxpayers. See my blog dated April 17, 2014 for a summary of how such taxpayers can avoid and successfully defend against such audits.
- The second target is partnership tax returns. Jerry announced that all agents in the Northeast Region are now trained in basic partnership issues. Jerry also noted that his office had conducted audits for 322 taxpayers who had purchased the “Son of Boss” tax shelter from KPMG. These taxpayers, in total, paid in about $1 billion to the United States Treasury.
Offshore Voluntary Disclosure Program
- Foreign Banks Cooperate with IRS
- Make a complete disclosure of their cross-border activities;
- Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
- Cooperate in treaty requests for account information;
- Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
- Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
- Pay appropriate penalties.
The United States Department of Justice is currently negotiating with another 120 major international banks. For details, see the Wall Street Journal article[i] entitled Inside Swiss Banks’ Tax-Cheating Machinery.
- The Streamlined Voluntary Disclosure Program
The current Streamlined Voluntary Disclosure Program can help taxpayers who need to come forward. In most cases, these taxpayers will have to pay a penalty equal to 5 percent of the highest balance of their foreign financial assets being disclosed. They must generally pay income taxes, penalties and interest on unreported foreign income for the three years immediately prior to entering the Streamlined Voluntary Disclosure Program. Jerry Lucente emphasized the following two requirements for acceptance into the program:
- The taxpayer must come forward before the IRS learns of the non-compliance from the foreign banks; and
- The taxpayer’s conduct must be non-willful, that is, there was no intention on the part of the taxpayer to avoid a known legal duty.
IRS feels that the current offshore voluntary disclosure program has been successful. So far, 54,000 taxpayers have come forward and have paid $8 billion into the United States Treasury.
- IRS’s Offshore Targets
Jerry Lucente also mentioned that IRS is actively looking for taxpayers who access hidden foreign financial accounts with debit cards issued by foreign banks.
I acknowledge, with gratitude, the research assistance of Dean Jacobus, CPA.
[i] http://www.wsj.com/articles/inside-swiss-banks-tax-cheating-machinery-1445506381, last visited 12/15/15.