J-5 (Joint Chiefs of Global Tax Enforcement 2020 Update)

J-5 and the Joint Chiefs of Global Tax Enforcement

J-5 and the Joint Chiefs of Global Tax Enforcement: The J-5 and the Joint Chiefs of Global Tax Enforcement protocol is in full-effect, and continues to gain steam. In order further enforce foreign accounts compliance, and reduce offshore tax evasion, the J5 movement continues to gain momentum. For reference, J-5 refers to a group of 5 countries and tax agencies laser-focused on reduce offshore crime and fraud.

The J5 comprises the:

• Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO),
• Canada Revenue Agency (CRA)
• Fiscale Inlichtingen- en Opsporingsdienst (FIOD)
• HM Revenue & Customs (HMRC), and
• Internal Revenue Service Criminal Investigation (IRS-CI).

*This article updates out 2018 article.

J-5 and the Joint Chiefs of Global Tax Enforcement

As provided by the IRS:

 

The Joint Chiefs of Global Tax Enforcement (known as the J5) are committed to combatting transnational tax crime through increased enforcement collaboration. We will work together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials.

We are convinced that offshore structures and financial instruments, where used to commit tax crime and money laundering, are detrimental to the economic, fiscal, and social interests of our countries.

 

We will work together to investigate those who enable transnational  tax crime and money laundering and those who benefit from it. We will also collaborate internationally to reduce the growing threat to tax administrations posed by cryptocurrencies and cybercrime and to make the most of data and technology.

What is J5?

The goal of J5 is to enforce cryptocurrency tax laws, including:

• Foreign Exchange/Account Reporting
• Capital Gain Tax
• Income Tax
• Taxes on crypto-exchanges

An IRS History Leading to J5  

If you have been following our website over the past year or two, we have been writing extensively on issues involving international criminal tax, tax evasion, tax fraud, and cash structuring, etc.

Here are few links to some related resources:

• Offshore Tax Evasion Examples
• International Tax Crime
• Cryptocurrency Tax Basics
• Cryptocurrency International Reporting
• Cash Structuring Transaction Case Study
• FATCA, Tax Evasion & Money Laundering Case Study

The IRS Has Been Strategizing

While we don’t have a crystal ball, in recent months it has become evident from the recent IRS and DOJ developments that the IRS is ramping up enforcement of offshore tax related matters. Especially since the IRS has been cooperating with many of the world’s other superpowers, in developing strategies to aggressively enforce offshore and foreign tax matters.

Since the penalties associated with misrepresenting, or omitting foreign income, accounts, assets or investments to the IRS can be severe, it is important to be aware of the recent IRS trends – which leads us to one brief preliminary issue facing many taxpayers as of lately.

The IRS Planned its Strategy for Years with FATCA

Here is a breakdown/timeline of how over the past 5-10 years, the IRS has steadily brought Offshore Tax Evasion enforcement to the forefront.

FATCA Background

FATCA is the Foreign Account Tax Compliance Act.  It was developed in 2010, and enforcement began in 2014.  More than 110 countries and 300,000 Foreign Financial Institutions have entered into agreements and have already started providing U.S. account holder information to the IRS.

FATCA Strategy

The IRS wanted to find a way to obtain US account holder information regarding foreign money, investments, assets, income, and accounts that US account holders had overseas, but never reported to the IRS. By having foreign countries disclose this information to the IRS, the IRS does not need to rely upon individuals to voluntarily disclose this information in the same manner they did when the OVDP ‘program’ was initiated in 2009.

Result of FATCA

In March of 2018, the IRS announced that OVDP was terminating on September 28, 2018 Therefore, after September 28, 2018 if you were willful or acted with reckless disregard, you will no longer have the opportunity to disclose voluntarily through the traditional OVDP Program.  There is another alternative available, but it is not as straightforward as OVDP.

The IRS has not developed any substitute program for OVDP.

International Tax Enforcement Groups

International Tax Enforcement Group Background

Over the last year, the Internal Revenue has developed several International tax enforcement groups. The purpose of these enforcement groups is to train agents specifically on very complex international tax issues so that each particular group has their own focus. Each group will be highly-trained and dedicated to examining individuals/businesses that are out of compliance for not filing and/or for making intentional misrepresentations or omissions to the IRS on very specific international tax issues.

International Tax Enforcement Group Strategy

Instead of having to train agents for OVDP — requiring the agents to have knowledge on many different areas of tax law they may encounter during an OVDP case —  the IRS is splitting agents into different groups, and providing them expert training on various complex international tax issues, with each group focusing on one or two specific issues.

International Tax Enforcement Group Result

These IRS agents will presumably uncover the fraud or non-reporting of foreign money and then initiate an audit, examination or referral to an IRS criminal investigation before the person has a chance to “voluntarily disclose.”

OVDP Ended on September 28, 2018

OVDP — Background

The traditional OVDP program has been in existence since 2009 (when it was called OVDI). Since then, the program has morphed  multiple times, with increased penalties, increased reporting responsibilities, and more comprehensive disclosure requirements.

OVDP — Strategy

The goal of OVDP was to provide applicants with an opportunity to get into compliance before it was too late. Just as important, it was an opportunity for the IRS to uncover new tax scams, tax havens and other methods for hiding foreign money that the IRS was not previously aware of.

Ending OVDP Result

The IRS has developed offshore enforcement alternatives which includes more comprehensive (and cost-effective) methods for obtaining the information, and OVDP is no longer necessary to the IRS.

DOJ Requests Funding for an Offshore Tax Evasion Division

DOJ Offshore Tax Evasion Background

Recently, the Department of Justice made a request for funding in order to develop five attorneys and one paralegal focused specifically on offshore tax evasion.

As provided in the budget request

“The Department of Justice is seeking more than a half-million dollars in order to structure a team of five (5) attorneys with the sole intent of locating and enforcing offshore compliance. DOJ has made it clear that offshore tax evasion is one of the top litigation priorities.

 

“Use of foreign tax havens by U.S. taxpayers has been on the rise, aided by increasingly sophisticated financial instruments and the ease of moving money around the globe, irrespective of national borders. While the Division’s enforcement focused initially on cross-border activities in Switzerland, it has expanded to include wrongdoing by U.S. accountholders, financial institutions, and other facilitators globally, including publicly disclosed enforcement concerning banking activities in India, Israel, Liechtenstein, Luxembourg, Belize, Hong Kong and the Caribbean.”

DOJ Offshore Tax Evasion Strategy

The DOJ’s goal is to develop a highly trained team of tax attorneys with laser focus on uncovering, analyzing, investigating and possibly indicting individuals guilty of offshore tax related matters.

It would appear the process would include the following: one of the several tax enforcement groups uncovers information leading to offshore tax evasion and refers the matter to the Department of Justice. Thereafter, the U.S. Government as a whole will be fully equipped to provide a full-court press against any individual, or individuals committing tax evasion.

DOJ Offshore Tax Evasion Result

It will be much harder to avoid a criminal investigation for offshore tax related matters.

J5: The Next Piece to the Puzzle

Since offshore tax division is becoming a global epidemic, it would only make sense that many of the nation superpowers have banned together to develop a plan to enforce offshore tax related matters.

The name of the enforcement group is J5, and consists of the heads of tax crime and senior officials from multiple organizations such as:

• Australian Criminal Intelligence Commission (ACIC)
• Australian Taxation Office (ATO)
• Canada Revenue Agency (CRA),
• Dutch Fiscal Information and Investigation Service (FIOD)
• Her Majesty’s Revenue & Customs (HMRC), and
• Internal Revenue Service Criminal Investigation (IRS-CI).

What is important to note, is the group was founded in accordance with concerns made by Organisation for Economic Co-operation and Development (OECD).

In addition to FATCA, there is another offshore enforcement initiative called CRS. CRS is the Common Reporting Standard. Interestingly, while many countries have agreed to enforce CRS through (AEOI aka Automatic Exchange of Information), the United States is not yet one of the countries that has signed onto CRS…

…Nevertheless, the U.S. has agreed to participate in J-5, which may be a sign of things to come.

J-5 Strategy

The IRS wants to align itself with various superpowers worldwide in order to make sure it gets its piece of the pie regarding offshore tax evasion income it has already missed out on.

Moreover, it also shows that the IRS is serious when it comes to offshore tax evasion, and that combined with the proceeding paragraphs, it is clear that once the IRS finds you and uncovers your undisclosed foreign accounts — you may be in big trouble.

J-5 Result

As an individual with unreported foreign accounts, income, asset, or investments, it is important that you research this area of law before taking any action, interview experienced IRS Offshore Voluntary Disclosure Attorneys, and consider entering the traditional Offshore Voluntary Disclosure Program before it is too late.

What If the IRS Finds Me First?

If the IRS finds you first and you are under audit or examination, you are disqualified from entering any of the programs. In addition, the IRS can issue severe fines and penalties against you, including:

IRS Offshore Penalty List

A Penalty for failing to file FBARs

United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

FATCA Form 8938

Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

Penalties for failure to file Form 5472. A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3. Note. Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472. Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $25,000 penalty and each member is jointly and severally liable. If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $25,000 will apply.

A Penalty for failing to file Form 926

Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion 

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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