On December 22, 2016, the United States Tax Court (the “Court”) issued 15 West 17th Street LLC v. Commissioner, 147 T.C. No. 19 (2016) and addressed, a question related to the statutory construction of section 170(f)(8), which governs the substantiation requirements for certain charitable contributions. The Court held that the taxpayer was not entitled to a charitable contribution deduction for its donation of a historic preservation deed of easement to a non-profit organization on the ground that the rulemaking authority delegated in subparagraph (D) is not self-executing in the absence of regulations. Therefore, the general rule set forth in subparagraph (A) requiring a contemporaneous written acknowledgment applied to the gift at issue. Continue reading
The Pennsylvania Department of Revenue has announced the details of its new tax amnesty program. The program will run from April 21 to June 19,2017. All taxes administered by the Department are eligible for amnesty. Significant penalty and interest relief is available to all who participate, and taxpayers not known to the Department can avoid all taxes, penalties and interest for periods before 2010. Continue reading
A new Pennsylvania tax amnesty program is coming. It was enacted as part of the state’s 2016–2017 budget process. Taxpayers with unfiled state tax returns or returns that need to be amended will be able to pay the tax and half of the interest they owe, with the balance of the interest and all penalties being forgiven. Depending on individual circumstances, there may be only a five-year look back with all prior year tax liabilities forgiven. The effective date has not yet been announced, but when it is there will be a 60-day window to take advantage of the program.
The Amnesty Program
Any tax administered by the Department of Revenue that is delinquent as of December 31, 2015, will be eligible for the tax amnesty program, which will go into effect for 60 consecutive days beginning on a date to be established by the Governor. Under the amnesty program, one-half of all interest and 100 percent of all penalties on eligible taxes that are delinquent as of December 31, 2015, will be waived for taxpayers who file tax amnesty returns and pay delinquent taxes and one-half the interest that is due within the amnesty period.
A taxpayer with “unknown” liabilities who participates in the program and complies with all of its requirements will not be liable for any taxes of the same type that were due prior to January 1, 2011. “Unknown” means that either no return has been filed, no payment has been made, and the taxpayer has not been contacted by the Revenue Department concerning the unfiled returns or unpaid tax, or if a return has been filed, the tax was underreported and the taxpayer has not been contacted by the Revenue Department concerning the underreported tax.
A taxpayer with liabilities known to the Revenue Department may participate in the amnesty program and get the benefit of the waiver of all penalties and half the interest, but must file or amend all unfiled or deficient tax returns.
A taxpayer under criminal investigation or that is the subject of a criminal complaint or a pending criminal action for an alleged violation of any law imposing an eligible tax may not participate. A taxpayer who participates in the program is not eligible to participate in any future amnesty program. Additionally, if within two years after the end of the program a taxpayer that is granted amnesty becomes delinquent for certain periods in payment of any taxes that are due or in the filing of any required returns, the Department of Revenue may assess and collect all penalties and interest waived through the amnesty program.
The Department of Revenue is expected to publish guidance on participation in the amnesty program by no later than mid-September. Until then, many of the details of the program will not be available. For more information please click here.
On June 2, 2016, the United States Tax Court issued Guralnik v. Commissioner denying a Motion to Dismiss for Lack of Jurisdiction the Internal Revenue Service (IRS) filed on the ground that the taxpayer’s petition was not timely filed. As these motions are typically granted or denied by the court through a simple order, it seemed strange that the court would issue a division opinion, which is generally reserved for cases involving an issue of first impression or an important legal issue or principle. The court, however, used this case as a means to change precedent related to the date on which a petition must be filed in Tax Court to be considered timely. Continue reading
On July 21, 2016, the Ninth Circuit in United States v. Hom, No. 14-16214 D.C. No. 3:13-cv-03721-WHA (9th Cir. 2016), determined that a taxpayer who held an online poker account with PokerStars and PartyPoker was not required to report those accounts on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR). The taxpayer, however, was required to report his FirePay account on an FBAR.
The Ninth Circuit overturned the decision of the United States District Court for the Northern District of California, in part, which had held that all these three accounts were reportable on an FBAR.
The key issue was whether either PokerStars, PartyPoker or FirePay was a financial institution.
The Ninth Circuit stated that:
“[F]inancial institution” is in turn defined to include a number of specific types of businesses, including “a commercial bank,” “a private banker,” and “a licensed sender of money or any other person who engages as a business in the transmission of funds.” 31 U.S.C. § 5312(a)(2).
Hom’s FirePay account fits within the definition of a financial institution for purposes of FBAR filing requirements because FirePay is a money transmitter. See 31 U.S.C. § 5312(a)(2)(R); 31 C.F.R. § 103.11(uu)(5) (2006). FirePay acted as an intermediary between Hom’s Wells Fargo account and the online poker sites. Hom could carry a balance in his FirePay account, and he could transfer his FirePay funds to either his Wells Fargo account or his online poker accounts. It also appears that FirePay charged fees to transfer funds. As such, FirePay acted as “a licensed sender of money or any other person who engages as a business in the transmission of funds” under 31 U.S.C. § 5312(a)(2)(R) and therefore qualifies as a “financial institution.” See 31 C.F.R. § 103.11(uu)(5) (2006). Hom’s FirePay account is also “in a foreign country” because FirePay is located in and regulated by the United Kingdom.See IRS, FBAR Reference Guide, https://www.irs.gov/pub/irs-utl/irsfbarreferenceguide.pdf (last visited July 19, 2016) (“Typically, a financial account that is maintained with a financial institution located outside of the United States is a foreign financial account.”).
In contrast, Hom’s PokerStars and PartyPoker accounts do not fall within the definition of a “bank, securities, or other financial account.” PartyPoker and PokerStars primarily facilitate online gambling. Hom could carry a balance on his PokerStars account, and indeed he needed a certain balance in order to “sit” down to a poker game. But the funds were used to play poker and there is no evidence that PokerStars served any other financial purpose for Hom. Hom’s PartyPoker account functioned in essentially same manner.
This afternoon, President Obama signed into law a five-year, $305 billion highway funding bill that includes several controversial tax measures designed to help fund the legislation. One provision in the legislation authorizes the State Department to revoke U.S. passports of taxpayers who owe the U.S. Treasury more than $50,000 in tax liabilities. Another provision authorizes the Internal Revenue Service to use private debt collectors. In this blog post, we address the passport revocation provision, which now provides the IRS with a powerful tool to force tax compliance.
The law adds a new provision to the Internal Revenue Code (section 7345) which authorizes the Treasury Secretary to certify, to the Secretary of State, that a taxpayer has a “seriously delinquent tax debt.” A “seriously delinquent tax debt” is defined as a federal tax liability which been assessed and is greater than $50,000, and for which the IRS has either filed a lien or levy. (This dollar amount will be adjusted for inflation after 2016.)
Upon receipt of such certification, the Secretary of State is authorized to take action with respect to denial, revocation, or limitation of such taxpayer’s U.S. passport. The law prohibits the Secretary of State from issuing a passport to any individual who has a “seriously delinquent tax debt,” with exceptions provided for emergency circumstances or humanitarian reasons. The law authorizes the Secretary of State to revoke a passport previously issued to an individual with a “seriously delinquent tax debt.” If the Secretary of State decides to revoke a passport under these circumstances, he or she is authorized to limit such passport to return travel to the United States only. The Secretary of State may also deny any passport application submitted without a Social Security number.
Taxpayers who have entered into installment agreements or offers-in-compromise, or have requested collection due process hearings or innocent spouse relief, are exempt from this new law. If the Treasury Secretary has already certified a taxpayer to the Secretary of State, such certification must be revoked within 30 days of the taxpayer making full payment and obtaining release of lien; requesting for innocent spouse relief; entering into an installment agreement; or making an offer-in-compromise which is accepted. In the event that the Treasury Secretary issues an erroneous certification, such certification must be revoked as soon as practicable.
The law does includes certain provisions to safeguard taxpayer rights. Taxpayers who are certified to the Secretary of State as having a “seriously delinquent tax debt,” or whose certifications are subsequently revoked, are entitled to prompt written notice. Such notice must specify that the taxpayer is entitled to file a lawsuit in the U.S. Tax Court or a federal district court to challenge the certification. The court may determine that the certification was erroneous and, if so, order the Treasury Secretary to so notify the Secretary of State. Taxpayers who are serving in a combat zone are granted relief from the law’s provisions.
In addition, the new law amends existing Internal Revenue Code provisions to ensure that taxpayers are warned in advance that they could be subject to U.S. passport denial, revocation, or limitation. For example, notices of federal tax lien and notices of intent to levy must now include language advising the taxpayer that they may be certified to the Secretary of State as having a “seriously delinquent tax debt” with attendant passport consequences.
Finally, the law amends the Internal Revenue Code provision addressing confidentiality of tax returns and return information in order to permit the sharing of such information with the Secretary of State. In particular, for each taxpayer certified as having a “seriously delinquent tax debt,” the law authorizes the Treasury Secretary to share information regarding the taxpayer’s identity and the amount of the tax debt.
by Matthew D. Lee and Jed Silversmith
The Legal Intelligencer
Few rights are more sacrosanct than the constitutional privilege against self-incrimination. This right extends beyond making statements to police or testifying in court, but also to the act of producing records. This means that if an individual is subpoenaed to produce records, he does not need to do so if he can establish that the act of production would be an implicit representation that would incriminate himself. In short, it is not simply an individual’s words that can be used to incriminate himself, but also the mere possession of documents.
In the last four years, the federal courts of appeal have begun to peel back this inviolable privilege in the realm of foreign bank account reporting. The U.S. Court of Appeals for the Third Circuit has now joined six other circuit courts to hold that an individual may not assert Fifth Amendment “act of production” immunity in response to a request for his or her foreign bank account records. In United States v. Chabot, No. 14-4465 (3d Cir. Jul. 15, 2015), the Third Circuit joined the unanimous chorus of circuit courts to hold that the production of foreign bank account records is not protected by the Fifth Amendment because federal law requires that a taxpayer maintain such account records.
In Chabot, the taxpayers received a civil summons from the IRS demanding production of bank account records for an account at HSBC Bank. The Chabots refused to produce records, citing their Fifth Amendment rights. In response, the IRS filed a civil action in federal district court seeking to enforce the summons. Affirming the district court’s decision enforcing the summons, the Third Circuit concluded that records of a foreign bank account were “required records” and therefore the Fifth Amendment did not apply.
Foreign bank account reporting is a hot area of civil and criminal tax enforcement for the IRS and the Department of Justice since 2009, as a result of the landmark deferred prosecution agreement the United States reached with Switzerland’s largest bank, UBS AG, that year. Under the federal Bank Secrecy Act, which was enacted in 1970, every “resident or citizen of the United States or a person in, and doing business in, the United States” is required to keep records and file reports about transactions with foreign financial institutions. U.S. taxpayers are required to file these reports on a FinCEN Form 114, commonly referred to as an “FBAR,” annually.
Failure to file the FBAR form carries draconian civil penalties: 50 percent of the highest balance in the unreported bank account each year. The IRS, the agency charged with enforcement, is permitted a six-year look-back period, meaning that it may impose a penalty equal to three times the balance of the account (in other words, 50 percent of the account for each of six years). This is not an idle threat. Last year, a jury upheld a three-year, 150 percent penalty against a Florida man who had failed to disclose his Swiss bank account worth about $1.5 million.
Individuals who willfully fail to file an FBAR can be prosecuted criminally as well, carrying a statutory maximum of five years’ incarceration for each year that a taxpayer did not file. In addition to the failure-to-file penalty, the federal individual income tax return (Form 1040) asks taxpayers if they have an overseas bank account on Schedule B. The DOJ, as part of its offshore initiative, has prosecuted a number of taxpayers who failed to check “yes” in response to this question. This misstatement, which has no impact on a taxpayer’s tax liability, is still a felony.
Given that the disclosure of foreign bank account information carries both significant civil penalties and the very real threat of criminal prosecution, production of these records in response to subpoenas or summonses is not an abstract concern. Other than the Third Circuit’s decision in Chabot, every other “required records” decision involved enforcement of a grand jury subpoena.
The courts of appeals that have ordered the production of these documents have relied on the “required records doctrine.” The courts note the Bank Secrecy Act requires that a taxpayer maintain bank account records for a period of five years. Therefore, it is a “required” record, and the taxpayer cannot avoid producing it.
The required records doctrine first appeared in Shapiro v. United States, 335 U.S. 1, 32–33 (1948), which involved a merchant who was engaged in improper sales in violation of the Price Control Act during the early 1940s. The Supreme Court held that Shapiro had to produce records pertaining to the sales because such records were public papers as they were required to be kept by the Price Control Act. At that time, “private papers” were entitled to Fifth Amendment protection based on their private status but public papers were not.
The U.S. Supreme Court subsequently fleshed out Shapiro‘s holding in Grosso v. United States, 390 U.S. 62, 67–68 (1968), in 1968. In Grosso, the court set out three elements of the “required records” exception: (1) the reporting or recordkeeping scheme must have an essentially regulatory purpose; (2) a person must customarily keep the records that the scheme requires him to keep; and (3) the records must have “public aspects.”
In recent years, Shapiro has been applied sparingly. Baltimore City Department of Social Services v. Bouknight, 493 U.S. 549, 555–56 (1990), a 1990 decision, involved a mother who was suspected of child abuse but was given custody of her injured child with extensive conditions imposed by a protective order. The mother violated those conditions, and a court ordered her to produce the child in order to verify that the child was alive and well. When she refused, the court held her in contempt and rejected her contention that the Fifth Amendment protected her from having to produce him. The court, citing the required record doctrine, found that the mother did not have a legitimate Fifth Amendment concern. In California v. Byers, 402 U.S. 424 (1971), the court upheld California’s hit and run statute, reasoning that in certain instances “organized society imposes many burdens on its constituents.” The Byers court cited a host of decisions including Shapiro to reach its decision. Ordering a parent to produce her child in the face of previously documented allegations of child abuse or requiring that a motorist identify himself before he leaves the scene of an accident does not seem to implicate the same Fifth Amendment protections as the production of foreign bank records. The recent spate of appellate court decisions involving foreign bank accounts takes the required records doctrine much further. The Third Circuit, in applying this doctrine, justified its decision because these foreign tax records “serve legitimate noncriminal purposes, because government agencies use this data for tax collection, development of monetary policy, and conducting intelligence activities.”
The government has a significant interest in aggregating large amounts of data to fulfill a wide range of public policy applications. Therefore, the same could be said for almost any other record that a citizen may wish not to produce.
The Third Circuit’s decision is significant for two reasons. First, for individuals who have foreign bank accounts, if confronted with an IRS summons or a grand jury subpoena, they will be required to produce records—even if the production is incriminating or will yield a substantial civil penalty. Second, the decision is a clear erosion of constitutional protection. As Justice Felix Frankfurter pointed out in his dissent in Shapiro, “If Congress by the easy device of requiring a man to keep the private papers that he has customarily kept can render such papers ‘public’ and nonprivileged, there is little left to either the right of privacy or the constitutional privilege.” These court of appeals decisions are precisely what Frankfurter feared.
“‘Required Records’ Decision Erodes Taxpayers’ Fifth Amendment Rights,” by Matthew D. Lee and Jed Silversmith, was published in The Legal Intelligencer on August 18, 2015. To read the article online, please click here.
Reprinted with permission from the August 18, 2015, edition of The Legal Intelligencer © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.
Yesterday the Ninth Circuit addressed the question of whether an individual can be convicted of filing false tax returns pursuant to 26 U.S.C. 7206(1) where the tax returns in question were tendered to an IRS agent during an audit, and were not filed with an IRS Service Center in the normal course. See United States v. Boitano, No. 14-10139 (slip opinion available here). The defendant (who was also an accountant) had been convicted following a jury trial of making a false statement under penalty of perjury on personal income tax returns, and he appealed his conviction to the Ninth Circuit.
The Ninth Circuit’s opinion summarizes the pertinent facts as follows:
During the period relevant to this appeal, Boitano was a partner in Boitano, Sargent & Lilly, an accounting firm. His responsibilities included preparing tax returns and representing clients during IRS audits, but Boitano did not file his own income tax returns for the years 1991 to 2007.
The IRS undertook an examination in 1992/1993 and in 2004. Boitano still did not file any returns, and his case was referred to the IRS’s Special Enforcement Program.
In June 2009, Special Enforcement Program Agent Nick Connors requested a meeting with Boitano regarding his failure to file returns for 2001 through 2007. Connors and Boitano ultimately met three times. During the third meeting, Boitano handed Connors income tax returns for 2001, 2002, and 2003. The returns were signed under penalty of perjury by Boitano and his wife. Connors stamped the first page of the returns “Internal Revenue Service, SB/SE – Compliance Field, Sep 04, 2009, Area 7, San Francisco, CA,” and hand wrote “delinquent return secured by exam” on the first page of each. Per Boitano’s request, Connors copied the first page of the returns and gave the copies to Boitano as receipts.
The returns Boitano handed to Connors reported “estimated tax payments” that had not been made. The 2001 return reported a $26,000 payment, the 2002 return reported a $38,000 payment, and the 2003 return reported a $57,000 payment. In fact, the government calculated that Boitano owed the IRS $52,953.80 for 2001, $72,797.00 for 2002, and $104,545.94 for 2003.
Agent Connors quickly realized that the IRS did not have record of receiving the claimed estimated tax payments. Therefore, instead of sending the returns to the IRS service center for processing, he confronted Boitano with the discrepancy. According to Connors, Boitano “physically got a little pale and said that he was not sure why there [were] differences.” Soon thereafter, Connors sent Boitano a letter asking that he substantiate the estimated tax payments, or, if those estimates were not correct, that he identify the correct estimated amounts with “a written statement dated and signed explaining in detail why you believed the estimated payments to be the amounts reported on the delinquent returns filed on 9/4/09.” Boitano never responded.
Boitano was indicted and charged with three counts of making false statements under 26 U.S.C. § 7206(1). Section 7206(1) establishes that it is a felony for any person to “[w]illfully make and subscribe any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.” Boitano was also charged with three misdemeanor counts of failure to file taxes under 26 U.S.C. § 7203. He pleaded guilty to the three misdemeanors, but proceeded to trial on the felony charges.
The defendant argued at trial that filing is an essential element of § 7206(1) and that his act of handing the returns to Agent Connors did not constitute “filing” within the applicable IRS statute and regulations. The government agreed that filing is an element of the charged offense, but argued the filing element was satisfied by the uncontradicted evidence showing that the defendant handed fraudulent returns to Agent Connors. The district court agreed with the government. Over objection, Connors was permitted to testify that the defendant “filed 2001, 2002, and 2003 delinquent tax returns with me.” Connors provided additional foundational testimony that the IRS “treat[ed] the returns as having been filed” on September 4, 2009, the day the defendant handed them to Connors.
The Ninth Circuit’s opinion notes that the defendant’s opening appellate brief reiterates the position he argued unsuccessfully in the district court – that the evidence did not show the subject returns were “filed” within the meaning of the applicable IRS statutes and regulations when he handed them to Agent Connors. The court of appeals noted, however, that the government’s response brief contained an “unusual twist”:
Reversing its prior position, the government now concedes that “there is a single definition of ‘filing’ that applies in both the civil and criminal context,” and that “the record does not support that the returns here were filed.” The government agrees with Boitano that Connors’s testimony that the returns were “filed” when Boitano handed them to him was incorrect. The government’s new argument is that filing is not an element of the charged offense because, “by its own terms, [§] 7206(1) does not require the government to prove ‘filing’ as defined by the IRS regulations to establish a violation of the statute.” The government reasons, “under a correct understanding of Section 7206(1), [Boitano’s] actions violated the statute by his completing a return, signing it, and taking actions by which he gave up any right of self-correction.” (Emphasis added.) Notably, the government concedes that if it had to prove the returns were filed within the meaning of the IRS regulations, then Boitano’s convictions must be reversed.
The Ninth Circuit quickly dispensed with the government’s new argument, concluding that binding precedent supported the defendant’s position:
Our court has long held that “filing” is an element of a § 7206(1) violation. In United States v. Hanson, we affirmed a conviction for making false statements in violation of § 7206(1) where the defendant “fil[ed] false IRS forms that reported payments [defendant] had never made and claimed a tax refund [defendant] was not due.” 2 F.3d 942, 944 (9th Cir. 1993). In so ruling, we stated that “[t]o prove a violation of § 7206(1), making false statements, the government must prove that the defendant (1) filed a return, statement, or other document that was false as to a material matter . . . .” Id. at 945.
The government cites numerous reasons for its new contention that § 7206(1) does not require filing, but it offers no intervening authority for its argument that it should only be required to show that Boitano gave up the right of selfcorrection. It argues: (1) the statute, by its own terms, does not require proof of filing; (2) the Supreme Court has not identified filing as an element of the offense; (3) interpreting the statute not to require filing makes sense because the statute is not limited in its scope to tax returns; (4) the statute’s legislative history does not establish that filing is an element of the offense; and (5) filing a document is one way, but not the only way, to satisfy the statute. We are bound, however, by Hanson’s plain and explicit identification of “filing” as an element of a § 7206(1) offense. Id. (“To prove a violation of § 7206(1) . . . the government must prove that the defendant (1) filed a return. . . .”); see also United States v. Tucker, 133 F.3d 1208, 1218 (9th Cir. 1998).
The Ninth Circuit concluded that because binding circuit precedent establishes that “filing” is an element of a conviction under § 7206(1), and the government conceded on appeal that the record does not support that the returns here were filed, the defendant’s felony convictions must be reversed.
On August 11, 2015, the Organisation for Economic Co-operation and Development (OECD) released its annual report addressing global tax administration. The OECD’s stated mission is to “promote policies that will improve the economic and social well-being of people around the world.” The OECD describes its annual report as follows:
Tax Administration 2015, produced under the auspices of the Forum on Tax Administration, is a unique and comprehensive survey of tax administration systems, practices and performance across 56 advanced and emerging economies (including all OECD, EU, and G20 members). Its starting point is the premise that revenue bodies can be better informed and work more effectively together given a broad understanding of the administrative context in which each operates. However, its information content is also likely to be of interest to many external parties (e.g. academics, external audit agencies, regional tax bodies, and international bodies providing technical assistance).
The series identifies some of the fundamental elements of national tax system administration and uses data, analyses and country examples to identify key trends, comparative levels of performance, recent and planned developments, and good practices.
This edition updates performance-related and descriptive material contained in prior editions with new data up to end-fiscal year 2013, and supplements this information on some new topics (e.g. aspects of compliance management and strategic priorities for increased use of on-line services). It also includes coverage of four additional countries (i.e. Costa Rica, Croatia, Morocco, and Thailand).
Of particular interest in this report is the OECD’s finding regarding voluntary disclosure programs for non-compliant taxpayers. With the increased focus on offshore tax evasion by many countries, and the implementation of policies regarding the exchange of tax information among nations (including FATCA in the U.S., which is effective now, and the OECD’s Common Reporting Standard, which is just over the horizon), it is expected that taxpayers in many countries will be making greater use of voluntary disclosure programs. In the U.S., for example, the IRS Offshore Voluntary Disclosure Program for taxpayers with offshore bank accounts is the most successful voluntary disclosure program ever offered by the U.S. tax authority.
A press release announcing publication of Tax Administration 2015, and its key findings, is set forth below.
Tax administrations continue to face the challenges of improving their performance while reducing costs, decreasing compliance burdens for taxpayers tackling non-compliance. Improving taxpayer services, while making non-compliance harder, is helping revenue bodies increase their efficiency and allowing governments to finance important programmes that will further benefit their citizens.
Tax Administration 2015 is the sixth edition of the OECD’s comparative information series on tax administration. The report, which surveys 56 advanced and emerging economies (including all OECD, EU, and G20 countries), includes for the first time information: Costa Rica, Croatia, Morocco and Thailand. The series identifies fundamental elements of modern tax administration systems and uses data, analyses and examples to identify key performance trends, recent innovations, and examples of good practice.
Among the many findings and observations, the report in particular highlights:
— Significant organisational change – 40% of revenue bodies reported that they are currently managing the addition of new business activities, amalgamation with other government service providers, and consolidation of work and their office network, at a time when 60% saw reductions in staffing, with significant reductions in Australia, the United Kingdom and the United States.
— Strong investment in digital services– driven by customer expectation and productivity demands revenue administrations have invested significantly in digital on-the-go services. Average IT expenditure as a percentage of the total budget remained constant at 9.5%. Notable exceptions were Austria, Finland, Singapore and Norway where approximately 25% of the total budget is spent on IT.
— Better connected e-services, and future opportunity– while 95% of all revenue bodies offer the opportunity to file returns electronically, and over two thirds achieve usage over 75%, more could be done to move other aspects of the end-to-end process, including assessment, amendment and payment into a more integrated digital service.
— Improving outstanding tax debt position – Total tax debt for OECD member countries rose marginally in 2011 to 2013, from around 22% to just over 24% of net annual revenue collections. This ratio is however significantly impacted by two abnormal “outliers” which when removed change the results for OECD countries to show a decrease from 12.7% in 2011 to 11.1% of annual net revenue collections in 2013. Notably seven revenue bodies: Estonia, Ireland, Japan, Korea, Norway, Sweden and Switzerland have a collection to debt ratio of less than 5%. Improvements in collection performance can generally be attributed to:
-Strong management information systems;
-Well-developed analytics tools to guide use of extensive enforcement powers;
-Extensive use of tax withholding at source arrangements;
-Wide use of electronic payment methods; and
-Significant investment in information technology
— Improving management of large taxpayers – over 85% of revenue bodies have adopted the structured ‘co-operative compliance model’ recommended by the OECD, for managing their largest taxpayers. One-third use similar arrangements to manage the tax affairs of High Net Worth Individuals.
— Tax gap measurement on the increase – 43% of revenue bodies report they undertake or are researching estimates of the aggregate tax gap for some or all of the major taxes administered.
— Greater use of disclosure policies to improve tax compliance and bolster tax revenues — despite two-thirds of OECD member countries reporting that their tax law permits voluntary disclosures only 40% have a policy to encourage taxpayers to use these. Further only 11 member countries were able to report the results achieved from their voluntary disclosure programme. With the imminent implementation of automatic exchange of financial account information, it is expected that there will be greater interest in these programmes. See the recent report Update on Voluntary Disclosure Programmes: A Pathway to Tax Compliance.
— Electronic matching of VAT invoices continues to expand – with growing concerns about the VAT non-compliance, a relatively large number of revenue bodies, including many in Europe and Latin America, are successfully using systems to process bulk VAT invoice data for compliance risk management and fraud detection.
Continuing its aggressive use of Geographic Targeting Orders (GTOs) to fight money laundering, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced on July 7 that it was renewing a GTO in Southern California and issuing a new GTO in Texas. The California GTO applies to armored cars and other common carriers of currency at two crossings along the Mexican border in that state. The Texas GTO applies to carriers of currency at eight major ports of entry along the Mexican border in that state. The reporting and recordkeeping requirements imposed by these GTOs are designed to enhance the transparency of cross-border money movements and prevent the attempted exploitation of reporting exemptions by some carriers suspected of moving dirty cash for Mexican drug trafficking organizations.
A GTO is an order issued by the United States Secretary of the Treasury requiring all domestic financial institutions or nonfinancial trades or businesses that exist within a geographic area to report on transactions any greater than a specified value. GTOs are authorized by the Bank Secrecy Act in 31 U.S.C. § 5326(a). Originally, GTOs were only permitted by law to last for 60 days, but that limitation was extended by the USA Patriot Act to 180 days.
As explained in FinCEN’s press release announcing its actions, the GTOs temporarily modify the Report of International Transportation of Currency or Monetary Instruments (CMIR) requirements for common carriers of currency when physically moving more than $10,000 in cash across designated border crossings in California and Texas. The GTOs will require 100 percent CMIR reporting and recordkeeping by common carriers of currency at these border crossings because they eliminate the reporting exemption for these carriers that might otherwise apply to transporting currency from a foreign person to a bank. The enhanced reporting requirements of these GTOs will also require common carriers of currency to note additional information when completing the CMIR. This includes the name and address of the currency originator; the name and address of the currency recipient; and the name and address of all other parties involved in the movement of currency and monetary instruments. This additional information significantly assists law enforcement’s ability to identify and prosecute illegal transportation of currency and disrupt the illicit movement of bulk cash across the southwest border. FinCEN issued the GTOs in close coordination with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and U.S. Customs and Border Protection.
Common carriers of currency subject to the renewed California GTO must continue complying with the enhanced reporting requirements until February 4, 2016. Common carriers of currency subject to the new GTO at ports of entry in Texas must comply with the enhanced reporting requirements beginning on September 17, 2015, and continuing through March 15, 2016.
The Texas border GTO is the fifth such order issued publicly by FinCEN within the past year. Prior GTOs include the California border GTO that was just renewed (prior coverage here); a GTO targeted at businesses located with the Fashion District of Los Angeles (prior coverage here); a GTO focused on exporters of electronics in South Florida (prior coverage here); and a second South Florida GTO aimed at check cashers (prior coverage here).
Businesses that transport currency at border crossing in California or Texas must ensure that they are compliant with the terms of the renewed California border GTO and the newly-issued Texas border GTO. Severe penalties may be imposed for non-compliance with the terms of these GTOs, including the seizure and forfeiture of currency or other monetary instruments pursuant to 31 U.S.C. § 5317. In addition, a partner, director, officer, or employee of any common carrier of currency may be liable, without limitation, for civil sanctions and/or criminal penalties for violation of any of the terms of the GTOs.
Blank Rome’s Anti-Money Laundering & Economic Sanctions practice group can assist companies and individuals in addressing question regarding the scope and requirements of any of the GTOs issued by FinCEN. Please contact Ian M. Comisky or Matthew D. Lee with any questions.