IRS Commissioner Hints That OVDP Modifications Are in the Works

Since 2009, the Internal Revenue Service has offered three different amnesty programs for taxpayers with undeclared foreign bank accounts. These programs, the current version of which is entitled the Offshore Voluntary Disclosure Program (OVDP), have been subject to harsh criticism because they adopt a “one size fits all” penalty structure which fails to take account of the facts and circumstances of each case and, in particular, the reality that not every U.S. taxpayer with an offshore bank account is intending to evade his/her U.S. tax obligations. This is particularly true in the case of U.S. taxpayers who reside abroad, and may not be fully informed of their U.S. tax obligations (including the necessity to report non-U.S. bank accounts on the FBAR form).

The Taxpayer Advocate has been particularly critical of the IRS and its administration of the offshore voluntary disclosure programs. In her most recent report to Congress, the Taxpayer Advocate found that the “The IRS Offshore Voluntary Disclosure Program Disproportionately Burdens Those Who Made Honest Mistakes” and offered the following commentary:

Many people fail to report offshore income and file related information returns for a wide variety of reasons. With few exceptions, the IRS requires them to “opt into” a punishing offshore voluntary disclosure settlement program. The combination of the reporting statute and the way the IRS administers it creates the potential for such harsh penalties that some taxpayers agree to pay unwarranted amounts to avoid the penalties.

The median penalty paid under the 2009 program by taxpayers who had the smallest accounts, and did not have legal representation, was nearly eight times the unpaid tax. It was also disproportionately greater than what the IRS extracted from those with the largest accounts; they paid a median of about three times the unpaid tax. Thus, the IRS has extracted the most extreme penalties from unrepresented taxpayers with small accounts who were voluntarily trying to correct a mistake.  By contrast, IRS data suggests that those who don’t try to comply often remain undetected. Yet the IRS’s audit rate with respect to foreign financial account reporting is less than 0.25%.

In 2012, in response to this criticism, the IRS announced a new compliance program for non-resident U.S. taxpayers who were not compliant with their tax and FBAR reporting obligations. This program, referred to as “Streamlined Filing Compliance Procedures for Non-Resident Non-Filer U.S. Taxpayers,” was described by then-IRS Commissioner Douglas Shulman as “a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues.” The IRS formulated this procedure in response to revelations that many U.S. taxpayers living abroad only recently became aware of their U.S. tax and FBAR obligations. Taxpayers who wish to take advantage of the new procedure are required to file delinquent tax returns for the past three years and delinquent FBARs for the past six years, but the program is only available to taxpayers who have not filed U.S. returns. Penalty relief is available to taxpayers who present “low compliance risk.” While this new program appeared to be a step in the right direction, it still was subject to criticism by the Taxpayer Advocate (see here) and others because of its burdensome nature and the fact that penalty relief was uncertain and depended upon the IRS’ analysis of each individual taxpayer’s “compliance risk.”

On June 3, 2014, in remarks at the OECD International Tax Conference (available here), IRS Commissioner John A. Koskinen revealed that the IRS was considering modifications to the terms of the current OVDP in order to make them more fair and equitable. In particular, Commissioner Koskinen stated as follows:

Now, while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.

We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes. We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. We expect we will have much more to say on these program enhancements in the very near future. So stay tuned.

To date, more than 43,000 taxpayers have taken advantage of the offshore voluntary disclosure programs offered by the IRS since 2009, and have paid more than $6 billion in taxes, penalties, and interest to the U.S. Treasury. These statistics make clear that the offshore voluntary disclosure programs are by far the most successful voluntary disclosure programs ever offered by the IRS, and even more taxpayers are enrolling in OVDP now as a result of the U.S.-Swiss bank program (described here) and the upcoming July 1 effective date of FATCA. Commissioner Koskinen’s comments that modifications to the terms of the OVDP are welcome news to taxpayers and practitioners, but until the specific details are announced we can only take a wait and see approach.

DOJ Offshore Enforcement Update: In Landmark Case, Credit Suisse Pleads Guilty, Agrees to Pay $2.6 Billion Penalty; Swiss Bank Program Continues to Move Forward

Yesterday, the Department of Justice announced that Credit Suisse AG pleaded guilty to having assisted U.S. taxpayers in evading the payment of U.S. taxes and agreed to pay a penalty of $2.6 billion. Deputy Attorney General James M. Cole described this announcement as “an historic guilty plea” and “the largest monetary penalty of any criminal tax case ever.”

Attorney General Eric Holder described the conduct of Credit Suisse as follows:

The bank actively helped its account holders to deceive the IRS by concealing assets and income in illegal, undeclared bank accounts.   These secret offshore accounts were held in the names of sham entities and foundations.   This conspiracy spanned decades. In the case of at least one wholly-owned subsidiary, the practice of using sham entities to conceal funds began more than a century ago.   Credit Suisse not only knew about this illegal, cross-border banking activity; they willfully aided and abetted it.  Hundreds of Credit Suisse employees, including at the manager level, conspired to help tax cheats dodge U.S. taxes.

 In the course of these activities, Credit Suisse deceived the IRS, the Federal Reserve, the Securities and Exchange Commission, and the Department of Justice.   The bank went to elaborate lengths to shield itself, its employees, and the tax cheats it served from accountability for their criminal actions.   They subverted disclosure requirements, destroyed bank records, and concealed transactions involving undeclared accounts by limiting withdrawal amounts and using offshore credit and debit cards to repatriate funds.   They failed to take even the most basic steps to ensure compliance with tax laws.   And when the bank finally began to feel pressure to correct illegal practices and comply with the law – as a result of the Justice Department’s investigation, of which they were notified in 2010 – Credit Suisse failed to retain key documents, allowed evidence to be lost or destroyed, and conducted a shamefully inadequate internal inquiry.

The Statement of Facts can be found here; the plea agreement can be found here. Credit Suisse must now disclose all evidence and information about its U.S. accounts that is required by the Program for Non-Prosecution Agreements of Non-Target Letters for Swiss Banks (“Swiss Bank Program”). This includes, among other things, information on how its cross-border business operated; how Credit Suisse attracted and serviced its account holders; and the total number of accounts held by U.S. persons with the maximum dollar value. Credit Suisse must also supply the number of U.S. persons affiliated with each account, identify whether each account was held by an individual or entity, disclose the name of any financial advisor, attorney or other representative associated with the account, and reveal detailed information about what funds were transferred into and out of the account. The DOJ may then make treaty requests to Switzerland for actual account records that would reveal the names of those U.S. account holders. Unlike the situation with UBS where UBS agreed to pay $780 million and turned over the names of approximately 4,000 U.S. account holders after being specifically authorized to do so by the Swiss government, Switzerland has not enacted legislation that would specifically permit Credit Suisse to turn over U.S. account holder names to the DOJ without violating Swiss banking secrecy laws.

Regarding the Swiss Bank Program, Kathryn Keneally, Assistant Attorney General of the Department of Justice’s Tax Division, spoke at an American Bar Association Section of Taxation meeting last week and stated that Swiss banks that are participating in the program are making disclosures to the DOJ about accounts held by individual U.S. taxpayers. She urged anyone who has not yet come clean to make a disclosure through the U.S. Offshore Voluntary Disclosure Initiative (OVDI) but noted that it may be too late for some people who have already been identified as a result of the information provided via the program. She also noted that some Swiss banks in the program are offering to pay part of the penalty on behalf of its account holders who apply and are accepted to the OVDI. She also mentioned that the DOJ has expanded its efforts beyond Switzerland, with activities in Israel, India, and in the Caribbean. See Allison Bennett, Nonprosecution Program for Swiss Banks Providing Significant Amount of Information (Bloomberg BNA 5/13/2014). [Our full breakdown of the Swiss Bank Program can be found here].

IRS Reverses Decision; Readmits Bank Leumi Customers Into OVDP

When making a voluntary disclosure pursuant to the IRS Offshore Voluntary Disclosure Program (OVDP), the first step involves sending a letter requesting pre-clearance to make a voluntary disclosure.  The letter includes a taxpayer’s identifying information, including the taxpayer’s name and social security number.  The IRS then runs the taxpayer’s information through an IRS database to ensure that the IRS has not already received offshore account information with respect to the taxpayer or that the taxpayer is not already under audit or investigation.  If the taxpayer’s information is not in the IRS database, the taxpayer is ordinarily preliminarily accepted into the OVDP.  The taxpayer then must complete a questionnaire, and absent extenuating circumstances (e.g., non-compliance with the terms of the program, such as the funds in the offshore accounts being derived from criminal activity), the taxpayer’s matter is transferred from the IRS Criminal Investigation Division to the IRS Civil Division for processing.

Several dozen taxpayers who were prior customers of Bank Leumi in Israel completed this process and, in many cases, were both pre-cleared to make a voluntary disclosure and transferred from the IRS Criminal Investigation Division to the IRS Civil Division.  These taxpayers were apparently fully compliant with the terms of the OVDP.

Last March, however, the IRS abruptly kicked out these taxpayers from the OVDP.  Practitioners believe that the IRS had received information from Bank Leumi with respect to the taxpayers but had yet to update its database.  As a result, the IRS preliminarily accepted the taxpayers into the OVDP, despite the fact that the IRS was already in receipt of their offshore account information.

The IRS actions caused an uproar among (1) practitioners, who were advising their clients that they had cleared a huge hurdle in being preliminarily accepted into the OVDP, and (2) taxpayers, who were faced with the possibility of the severe civil (and perhaps criminal) penalties that the taxpayers originally sought to avoid by entering into the OVDP. 

Perhaps as a response to this uproar, the IRS last week reversed its decision, and readmitted the taxpayers into the OVDP.  The OVDP has been a huge success for the IRS, with the IRS collecting approximately $5.5 billion through the program.  However, abruptly kicking taxpayers out of the program likely jeopardized the continued success of the OVDP because taxpayers were more hesitant to enter the program knowing that the IRS may remove taxpayers from the program at any time.  The IRS actions last week should provide taxpayers with some measure of comfort that they will be treated fairly within the OVDP.

The Latest DOJ Offshore Enforcement Scorecard

As we have noted in prior posts (see here), the Justice Department’s website maintains a real time “scorecard” of its efforts to clamp down on offshore tax evasion through criminal prosecutions.  The DOJ’s Tax Division has created an “Offshore Compliance Initiative” which is tasked with leading this effort.  According to the DOJ website, here are the latest statistics:

  • Since 2009, the Justice Department has criminally charged more than 30 banking professionals and 68 U.S. accountholders with violations arising from their offshore banking activities.
  • 54 U.S. taxpayers and four bankers and financial advisors have pleaded guilty, and five taxpayers have been convicted at trial.
  • One Swiss bank (UBS) entered into a deferred prosecution agreement, and a second Swiss bank (Wegelin) was indicted and pleaded guilty.
  • The Justice Department is currently investigating the Swiss-based activities of 14 financial institutions.
  • In addition to Switzerland, the Justice Department is actively investigating banks located in India, Luxembourg, Israel and the Caribbean.

Meanwhile, the IRS continues to offer amnesty (details available here) to those taxpayers who voluntarily disclose their offshore banking activities in a timely fashion — that is, before the U.S. government obtains information regarding their non-compliance.  Since 2009, more than 38,000 taxpayers have made voluntary disclosures to the IRS regarding undisclosed foreign bank accounts, generating over $5 billion in additional revenue to the U.S. Treasury.

FBAR Reminder: Foreign Bank Account Disclosure Deadline Is June 28, 2013

The annual deadline for filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR” form) is fast approaching. Any U.S. taxpayer with a financial interest in, or signature or other authority over, a foreign financial account (which includes bank, security and other types of financial accounts) is required to file the FBAR form if the aggregate value of the account (or accounts) exceeds $10,000 at any time during the 2012 calendar year, subject to certain exceptions. The FBAR filing deadline is normally June 30, but because June 30 falls on a Sunday this year, the actual deadline is Friday, June 28, 2013. No extensions of time to file the FBAR are available and it is considered timely filed only when it is actually received by the Treasury Department’s service center located in Detroit, Michigan, and not when it is mailed. Significant criminal and civil penalties may be imposed for the failure to timely file an FBAR.

The FBAR may be filed electronically through the BSA E-Filing System.  Starting July 1, 2013, the FBAR must be filed electronically. 

Taxpayers who are not compliant with their prior year FBAR filing obligations may wish to take advantage of the Internal Revenue Service’s Offshore Voluntary Disclosure Program (OVDP), an amnesty program designed to encourage U.S. taxpayers with undisclosed foreign bank accounts to come into compliance with U.S. tax laws and avoid criminal prosecution. This program permits eligible taxpayers with undisclosed foreign bank accounts, and unreported income associated with those accounts, to avoid criminal prosecution in return for the payment of back taxes, interest, and penalties.  To date, nearly 40,000 U.S. taxpayers have taken advantage of the offshore voluntary disclosure programs offered by the IRS since 2009. Currently, there is no deadline for participation in the OVDP, although the IRS has stated that it could end the program, or modify its terms, at any time.

The U.S. Government’s Crackdown on Offshore Tax Evasion, and Options for Non-Compliant Taxpayers

For the past four years, the U.S. government has waged an unprecedented global campaign to crack down on the use of secret, offshore bank accounts by U.S. taxpayers to evade taxes. While there is nothing illegal about maintaining accounts in foreign countries, U.S. taxpayers are required annually to disclose their offshore accounts to the Internal Revenue Service on a form entitled “Report of Foreign Bank and Financial Accounts”—commonly known as the “FBAR” form—and to report all income generated by those holdings on their personal income tax returns. The failure to report foreign accounts can subject a taxpayer to hefty civil penalties and, in the case of willful conduct, criminal prosecution. Since 2009, over 35,000 U.S. taxpayers have come forward under special IRS voluntary disclosure programs to reveal that they have unreported bank accounts in countries such as Switzerland, India, Israel, and many others.

The government nonetheless believes that many more taxpayers still maintain unreported foreign accounts, and is aggressively seeking to discover such individuals and punish them with civil penalties and, in some instances, criminal charges. At the same time, the Internal Revenue Service has implemented several initiatives which offer non-compliant taxpayers the opportunity to return to compliance and avoid the possibility of criminal charges.

The UBS Deferred Prosecution Agreement and Its Aftermath

The Internal Revenue Service and Justice Department initially trained their sights on UBS AG, Switzerland’s largest bank. After UBS banker Bradley Birkenfeld provided information to the IRS on his bank’s practice of aiding U.S. taxpayers in hiding funds in numbered bank accounts (and eventually received a $104 million whistleblower reward), UBS admitted that it helped U.S. citizens hide money using undisclosed accounts, offshore corporations, family foundations, and other mechanisms designed to conceal the true identity of account holders. The U.S. also discovered that the sheer number of accounts held by Americans was staggering: in court filings, the Justice Department estimated that over 52,000 Americans held accounts at UBS alone.

UBS avoided criminal prosecution in the U.S. by paying $780 million in fines and penalties to the U.S. government and by agreeing to turn over the names of U.S. customers of the bank that were suspected of committing tax fraud. Under enormous diplomatic pressure from the U.S. government which ensued, Swiss legislators subsequently voted to weaken the country’s historic bank secrecy laws, paving the way for UBS to hand over the names of thousands of additional its U.S. depositors to the U.S. authorities. This result prompted the Justice Department to proclaim on its web site that “fabled Swiss bank secrecy” had been dealt “a devastating blow.”

Justice Department attorneys and IRS agents combed through mountains of information handed over by UBS, commenced more than 150 criminal investigations of account holders, and eventually brought criminal charges against the most egregious tax evaders. To date, nearly 50 Americans holding accounts at UBS and other Swiss banks have faced criminal charges, along with dozens of “enablers”—such as bankers, attorneys, and financial advisors—who assisted account holders in hiding assets offshore.

The government’s crackdown on offshore tax avoidance and evasion did not end with UBS; at least 10 banks in Switzerland, Israel, and India are currently under criminal investigation for allegedly aiding and abetting tax fraud by U.S. depositors. Switzerland’s oldest bank, Wegelin & Co., was indicted in federal court in New York, had its correspondent bank accounts in the U.S. seized, and eventually pleaded guilty and paid fines and penalties in excess of $70 million. Most recently, several account holders at Israeli banks have been charged with, and pleaded guilty to, concealing foreign accounts. It is widely expected that additional foreign banks will either cut deals with the U.S. or face criminal charges for their roles in helping Americans evade taxes and more names from banks all over the world will be turned over to the IRS.

Obligation to Report Foreign Bank Accounts and Certain Foreign Assets

As noted above, there is nothing improper about a U.S. taxpayer maintaining a bank account in a foreign country, even in so-called “bank secrecy” countries such as Switzerland, the Cayman Islands, and Singapore. Anyone having such an account is required to report on his or her personal income tax return all income (interest, dividends, and capital gains) earned in that account and answer “yes” to a question on Schedule B of the return which asks whether you have a foreign bank account. Account holders are also required annually to file a form called “Report of Foreign Bank and Financial Accounts” (commonly known as the FBAR form) with the Treasury Department on June 30 of each year. The failure to file the FBAR form and to report income from a foreign account can subject the account holder (and spouse, if a joint tax return is filed) to criminal charges, including tax evasion, as well as substantial civil penalties. U.S. taxpayers with foreign assets over certain dollar thresholds are also required to file a new Form 8938, entitled “Statement of Foreign Financial Assets,” with their income tax returns. Civil and criminal penalties also apply to the failure to file this form, and the failure to file extends indefinitely the civil statute of limitations to assess taxes for the tax return that failed to report the foreign assets.

Options for Non-Compliant Taxpayers: The IRS Offshore Voluntary Disclosure Program

In 2009, shortly after UBS executed its deferred prosecution agreement and the Swiss government started divulging the identities of holders of secret accounts, the IRS announced a special amnesty program for offshore bank accounts. This program was prompted by the recognition that not everyone with a Swiss bank account was a tax cheat; indeed, many Americans inherited bank accounts in Switzerland—such as from ancestors fleeing Nazi Germany—or maintained accounts in foreign countries for wholly legitimate reasons. Amnesty was only available, however, if the account holder came forward before the IRS obtained the individual’s account information; once the IRS learned of the taxpayer’s non-compliance, the voluntary disclosure program was no longer an option. Individuals who took advantage of that program were required to pay back taxes and substantial civil penalties in exchange for amnesty from criminal prosecution.This special program (which lasted for only six months) was such a huge success, with over 15,000 individuals coming forward to confess that they had unreported bank accounts, that the IRS re-opened the program in 2011 and yet again in 2012. To date, more than 35,000 individuals have taken advantage of the three IRS amnesty programs for offshore accounts, generating over $5 billion in addition revenue for the U.S. Treasury.

The current amnesty initiative offered by the IRS—called the Offshore Voluntary Disclosure Program (OVDP)—does not have a definitive end date, but the IRS has warned that the program could end at any time. Taxpayers accepted into the OVDP must file amended tax returns for an eight year period and pay all back taxes, interest, and an accuracy related penalty calculated at 20 percent of the taxes due. In a change from the prior program, the top-tier civil penalty has been increased from 25 percent to 27.5 percent, and this penalty is calculated based upon the highest aggregate value of the taxpayer’s foreign bank accounts during the eight-year disclosure period. The program retains the lower tier penalties of 12.5 percent and 5 percent which apply in only limited circumstances.

New Filing Compliance Procedures for U.S. Taxpayers Residing Abroad

The IRS has also announced a new program to enable U.S. taxpayers residing overseas, including dual citizens, to become compliant with their U.S. tax obligations. The IRS formulated this procedure in response to revelations that many U.S. taxpayers living abroad only recently became aware of their U.S. tax and FBAR obligations. Taxpayers who wish to take advantage of the new procedure will be required to file delinquent tax returns for the past three years and delinquent FBARs for the past six years. All submissions will be reviewed by the IRS but the intensity of review will vary according to the level of compliance risk presented by the submission. Taxpayers presenting low compliance risk will receive expedited review and the IRS will not assert penalties or pursue follow-up actions. The IRS has stated that tax returns showing little or no U.S. due will generally be considered “low risk.” On the other hand, submissions that present higher compliance risk are not eligible for the new procedure and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, and may include imposition of interest and penalties.

The Foreign Account Tax Compliance Act (FATCA)

Despite the large numbers of individuals who have participated in the various IRS amnesty programs over the past four years, it is nonetheless widely believed that many more U.S. taxpayers holding foreign accounts in countries around the world have failed to “come in from the cold,” largely due to the belief that the U.S. government would never discover the existence of their accounts. Many of these account holders presumably believe that they are protected by the bank secrecy laws of the countries where they maintain accounts or that those jurisdictions would never willingly give up the names of account depositors. But that is all about to change, as key provisions of a controversial new U.S. law—the Foreign Account Tax Compliance Act (FATCA)—become effective starting in 2014.

The primary focus of FATCA is to identify non-compliance by U.S. taxpayers using offshore accounts. Once implemented, FATCA will require foreign financial institutions (a broadly-defined term which includes traditional banks but also encompasses a broad array of non-bank financial institutions including hedge funds) to annually disclose information about accounts held by U.S. individuals, or foreign companies in which U.S. individuals hold a substantial ownership interest. Foreign financial institutions (FFIs) which refuse to provide such information about their customers to the U.S. will face a stringent penalty: withholding of 30 percent of all U.S.-source payments of interest, dividends, and the like. FATCA essentially forces foreign banks to cooperate if they wish to have access to U.S. capital markets, and will substantially penalize banks which refuse to participate.

The arrival of FATCA signals a new era and arms the U.S. government with a powerful tool to detect offshore tax evasion. U.S. taxpayers with undeclared foreign accounts can no longer assume that they will remain undetected or protected by foreign banking secrecy laws. Taxpayers who are noncompliant with their U.S. tax and/or FBAR obligations are well-advised to consider taking advantage of either the OVDP or the new compliance procedures for non-resident taxpayers, depending upon their circumstances. With the IRS and Justice Department continuing their unrelenting global crackdown on international tax evasion and bank secrecy laws, and full-scale implementation of FATCA on the near horizon, the risk of detection is significantly increased and the threat of criminal prosecution is real. Non-compliant taxpayers would be well advised to take advantage of the ongoing IRS offshore voluntary disclosure program before FATCA is fully implemented and the window of opportunity for amnesty has closed.

This article originally appeared in the May-June 2013 edition of Main Street Practitioner and is reprinted with permission.

IRS Releases Key Statistics on Audit Rates and Enforcement Activity

The Internal Revenue Service has released its annual data book, which it describes as a “snapshot of agency activities for the fiscal year.”  The time period covered in the FY 2012 Data Book is October 1, 2011, through September 30, 2012. 

Among the data presented in the FY 2012 Data Book are audit rates for the past year.  The overall audit rate for individual tax returns was 1.03 percent, which is generally consistent with prior years.  The audit rates for wealth taxpayers, however, saw a slight decrease.  The following chart nonetheless illustrates that the audit risk dramatically increases for taxpayers reporting large amounts of adjusted gross income:

IRS Audit Rates FY 2010 FY 2011 FY 2012
All returns 1.11% 1.11% 1.03%
No AGI 3.19% 3.42% 2.67%
AGI $1 to $25,000 1.18% 1.22% 1.05%
AGI $200,000 to $500,000 1.92% 2.66% 1.96%
AGI $500,000 to $1 million 3.37% 5.38% 3.57%
AGI $1 million to $5 million 6.67% 11.80% 8.90%
AGI $5 million to $10 million 11.55% 20.75% 17.94%
AGI over $10 million 18.38% 29.93% 27.37%

The overall audit rate for estate tax returns is nearly 30 percent, with 12,582 estate tax returns filed during calendar year 2011.  The audit rate for estate tax returns where the size of the gross estate is between $5 million and $10 million is 58.6 percent.

On the enforcement front, the IRS assessed nearly $26.9 billion in civil penalties during FY 2012, and initiated 5,125 new criminal tax investigations.  2,466 taxpayers were convicted of a tax crime during FY 2012, and 2,009 of those individuals (or 81.5 percent) received a sentence of incarceration.  The number of IRS Special Agents (who are responsible for conducting criminal investigations) employed by the agency is down, from 2,730 in FY 2011 to 2,657 in FY 2012.

On the international enforcement front, Acting Commissioner Steven T. Miller offers the following assessment:

The IRS in 2012 made significant progress on international enforcement, specifically in our efforts against the practice of illegally hiding assets and income in offshore accounts.  We have continued our two-pronged approach: offering a voluntary disclosure program for those who want to come in and get right with the government, while at the same time pursuing tax evaders and the promoters and banks assisting them.

Although not discussed in the FY 2012 Data Book, the IRS Offshore Voluntary Disclosure Program remains open and provides a mechanism for taxpayers with undisclosed foreign bank accounts and unreported income from such accounts to obtain amnesty from criminal prosecution through the payment of back taxes, interest, and penalties.  To date, more than 35,000 individuals have enrolled in the OVDP since 2009 and more than $5 billion in additional revenue for the U.S. Treasury has been generated.  Details on how to enroll in the OVDP are available here.