A memorandum issued last month by the IRS's Acting Director for Collection Policy sets out interim guidance for IRS Revenue Officers (the IRS personnel responsible for collecting assessed tax and/or penalty liabilities) in connection with various international tools available to collect taxpayer assets located outside of the United States. (See SBSE-05-1222-0060.) The interim guidance primarily affects Section 5.21.3 of the Internal Revenue Manual (IRM).
The memorandum outlines numerous methods by which Revenue Officers can pursue assets located overseas. It sets out procedures for citizenship research; research related to a taxpayer's historical travel information (via the TECS database); availability of FinCEN data; CKGE research (CKGE is an acronym for Compliance Data Warehouse Knowledge Graph Environment, which is an IRS program that essentially cross-references a taxpayer's connections to third parties/entities – as the memorandum explains: “CKGE can link a taxpayer to an international asset and country of birth of the taxpayer.”). Other international collection tools described in the guidance include, among other things, requests for taxpayer passport information; Foreign Account Tax Compliance Act (FATCA) information requests; and formal requests to foreign governments pursuant to Mutual Collection Assistance Requests (MCAR).
Revenue Officers are directed to use the international collection “tools” described above in cases that involve taxpayers who file (or should file) FBARs, who invest in foreign companies, who travel abroad frequently, who transfer money to foreign banks, who are involved in business that involves foreign customers, who frequently pay fees for foreign currency conversions, who incur credit card charges for foreign expenses, or reflect other indicia of international financial activities.
While I have no inside knowledge behind the IRS policy driving this new internal guidance, I suspect it arises, at least in part, from the long, smoldering aftermath of the IRS's decade-long enforcement effort directed at taxpayers who hide their money in foreign banks and fail to report the income generated from their foreign assets and investments. While the majority of those taxpayers either “came clean” using one of the IRS's amnesty programs (e.g., the (now-closed) Offshore Voluntary Disclosure Program (OVDP), the Streamlined Procedures, or the Delinquent FBAR Procedures), or were subject to “offshore audits” and attendant (usually draconian) civil penalties (or even, in a some cases, criminal prosecution), there is no doubt that a meaningful number of taxpayers with foreign account issues simply left the United States under the assumption that the IRS would never find them (or their money). And some non-compliant taxpayers have remained in the United States while they continue to keep funds hidden overseas (even after offshore audits that have resulted in large assessments), again assuming that the IRS will never have the ability to actually track the money down. The recent IRS guidance suggests that these taxpayers very likely underestimate the power and the reach of the federal government.