Bloomberg BNA Interviews Scott Michel on Increased IRS/DOJ Offshore Compliance Efforts

Scott D. Michel spoke with Bloomberg BNA concerning the IRS’s announcement that its offshore programs had attracted over 100,000 taxpayers and raised over $10 billion.  He discussed the likely future course of such compliance programs, noting that they could incentivize disclosures from more taxpayers with foreign accounts who are contacted by financial institutions complying with FATCA or who are in certain regions that may become enforcement targets.  For the full article, please visit Bloomberg BNA’s website (subscription required).

Excerpt taken from the article.

In Switzerland, the IRS and the DOJ were able to “smoke” out most of the criminals in the Swiss banking system, said Scott D. Michel, a member of Caplin & Drysdale Chartered, adding that the agency's offshore compliance efforts have been among the most successful.

While the Swiss program uncovered a lot of “low-hanging fruit,” Michel said he expects the voluntary compliance cases that the IRS sees over the next decade will be different than the cases of the past eight years.

One factor pushing taxpayers to come forward is the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial Institutions to report the foreign assets held by their U.S. account holders or be subject to withholding.

“It is the bank pressure on these individuals that I think is starting to drive a smaller, but newer wave of people coming forward, particularly in areas that have not seen a lot of attention like Latin America, the Middle East and Asia,” said Michel, who advises U.S. citizens living abroad and foreign entities doing business in the U.S. about tax compliance.

Complex Cases, More Enforcement

Taxpayers may choose to enter into the IRS's voluntary compliance program because they are dealing with a nuanced set of factors that may expose them to U.S. tax obligations that they weren't originally aware of, Michel said.

A lot of these people have shares in a U.S. company or are beneficiaries of a U.S. trust that their predominantly non-U.S. family has put them in, he said. “Not everyone is as attentive to their compliance obligations when they're not living in the U.S., confronting tax filing deadlines every year or dealing with tax professionals,” he said.

Enforcement pressure resulting from a decision by the IRS or the DOJ to pursue another program targeting a specific region or country, could also create an influx of taxpayers into the IRS's compliance program, Michel said.

“If the Department of Justice and the IRS start pursuing Singapore, or Hong Kong, or go back to the Caribbean, or look at certain Middle Eastern or Latin American countries, I think you could see the same effect that you saw in Switzerland where an increased enforcement pressure by the U.S. in a jurisdiction starts to shake the trees in a pretty big way,” he said. “There's a direct relationship between the DOJ and IRS deciding to target a particular region or a particular country and the amount of compliance that comes out of the other end.”