According to the Treasury Inspector General for Tax Administration (TIGTA), the Internal Revenue Service (IRS) is underutilizing exchange of information (EOI) capabilities with foreign countries. On September 11, 2017, TIGTA issued a report summarizing its evaluation of the IRS’s current efforts to improve tax compliance by using information obtained from foreign countries through the Exchange of Information Program agreements.
TIGTA’s three main conclusions were: (1) the automatic exchange of information (AEOI) recordkeeping is inadequate and the usefulness of the information is unknown; (2) the Mutual Collection Assistance Request Program (MCAR) may not be used to its full potential; and (3) the spontaneous exchange of information program requires a multitude of enhancements.
TIGTA made several recommendations to the IRS to maximize the use of information received and collection assistance available from foreign countries. The recommendations included:
(1) Conduct an outreach to examination and collection field functions to alert them on the availability and potential usefulness of automatic data provided by treaty partners that can be gained by requesting and obtaining access to an easy search tool;
(2) Expand upon the AEOI Program section of the Internal Revenue Manual (§ 4.60.1) to add recordkeeping requirements to track the incoming and outgoing records;
(3) Create procedures for AEOI personnel that: a) allow AEOI personnel to accurately track the data and/or record counts received by country; b) track the data by country that contractors upload to the AEOI database; and c) monitor the difference in received and posted record counts by country to identify and resolve upload issues in a timely fashion;
(4) Reinforce the IRS’s 2016 international collection strategy related to the MCAR Program to address the importance of issuing MCARs when warranted as an additional collection tool, and prioritize the timely processing of outgoing MCAR requests;
(5) Enhance revenue officers’ awareness of tools to explore international asset identification;
(6) Coordinate with Treasury Department’s Office of Tax Policy to identify additional countries with whom the United States could benefit by adopting MCAR provisions in a treaty; and
(7) Establish criteria for withdrawing issued outbound MCARs when the taxpayer has not fully paid.
The IRS agreed with TIGTA’s recommendations and plans to address those issues by implementing several corrective actions by the summer of 2018.
The final report entitled “Exchange of Information Capabilities Are Underutilized by the Internal Revenue Service” and the IRS’s response to an earlier draft is available here.
Practice Point: The information exchanged among tax administrations has increased significantly since the implementation of the Foreign Account Tax Compliance Act (FATCA). The TIGTA report identified several areas in which the exchange of information is currently being underutilized by the IRS. The IRS is clued into these flaws and is focused on updates to maximize the value of the information. As we previously discussed, the IRS recently announced two new enforcement initiatives in the Criminal Investigation Division (CID) to use FATCA data and other international information more effectively. Taxpayers can expect the IRS to improve these processes and implement many of the recommended changes in TIGTA’s report. The amount of information exchanged among tax administrations will dramatically increase again with the imminent implementation of country-by-country reporting. It will be interesting to see how the government manages that increase.