February 22, 2019

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I.R.S. Tax Fraud Cases Plummet After Budget Cuts

I.R.S. Tax Fraud Cases Plummet After Budget Cuts
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The I.R.S. allowed Americans with foreign accounts to voluntarily disclose them and pay a smaller penalty than they would have had they been caught hiding the information. Some 56,000 people participated, netting the government $11.1 billion. The I.R.S.’s criminal division also brought several cases against people for concealing accounts.

For all this success, there has been little change in the amount of wealth stashed overseas. Americans have about $1.2 trillion of personal assets in tax havens, according to data compiled by Gabriel Zucman, an assistant professor of economics at the University of California, Berkeley, and two colleagues. It’s unclear what portion has been disclosed to the I.R.S.

“What has happened over the last 10 years is real progress,” Dr. Zucman said. “But what the data suggest is that it has not had a dramatic effect on the amount of offshore wealth.” Money has flowed out of Switzerland and into Asian tax havens like Hong Kong and Singapore.

Moreover, the I.R.S. has made little use of new weapons in the fight against wealth hidden overseas. In 2010, President Barack Obama signed a law that was supposed to provide a crucial tool for government auditors and prosecutors. That law, the Foreign Account Tax Compliance Act, required banks with American account holders to report information to the United States. Like W-2 forms that employers file to tell about their workers, these reports would force account holders to come clean.

Eight years later, the program is still getting off the ground. Countries around the world have signed agreements, and more than 100,000 foreign banks have sent information to the United States. But “there is no ongoing compliance impact of the FATCA at this time,” according to a report this year by the inspector general for the I.R.S.

The report found serious problems with the millions of records collected so far. About half, for example, didn’t include identification numbers for the taxpayers, making it difficult to match the accounts with individuals. The I.R.S. hadn’t set up a process for using the records. The agency said it was working on such a system.

Here, too, the cuts to the I.R.S.’s budget have had an impact. During the Obama administration, the I.R.S. asked Congress for hundreds of millions of dollars to carry out the program, but received nothing. Since Mr. Trump took office, the agency has stopped asking.

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