As globalization continues to reduce barriers to cross-border commerce, tax authorities around the world have increased information exchanges with other countries to administer and enforce the tax laws of their respective countries. It is important for the IRS to maximize the use of the information received and collection assistance available from foreign countries.
According to the TIGA Audit, the information provided by other countries presents a potentially important source of data for the IRS. This audit was initiated to evaluate the IRS’s efforts to improve tax compliance by using information obtained through the Exchange of Information Program agreements with foreign countries.
Thye TIGA Audit detected that the IRS did not have an adequate tracking system to account for the records foreign countries sent on a regular basis under the Automatic Exchange of Information Program. Access to these data is only given to a relatively small percentage of IRS compliance employees. Additionally, the IRS is not using the mutual collection assistance available from foreign countries to its full potential, and criteria has not been established for withdrawing issued collection assistance requests.
TIGTA found multiple problems with the Exchange of Information Program Office’s processing of spontaneous information received from foreign countries that they believed may be of interest to the United States for tax purposes. The problems include lack of tracking on whether information was forwarded to IRS compliance functions, errors in information forwarded, and the feedback process with the compliance functions. The IRS generally took timely corrective actions after TIGTA shared these observations with respect to the Spontaneous Exchange of Information Program.
TIGTA recommended that the IRS conduct outreach to alert Examination and Collection field functions on the availability and potential usefulness of automatic data provided by treaty partners; expand guidance on the recordkeeping required for tracking systemically received data; reinforce the importance of timely issuance of mutual collection assistance requests and establish criteria for withdrawing the requests when taxpayers have not fully paid; and make revenue officers aware of the tools to explore international asset identification.
In response to the report, IRS officials agreed with all recommendations. The IRS plans to publicize the availability of automatic data provided by treaty partners and will incorporate record keeping requirement into the Automatic Exchange of Information Program section of the Internal Revenue Manual. Additionally, the IRS will reinforce the importance of mutual collection assistance requests and make revenue officers aware of tools to identify international assets. The IRS will establish criteria and issue guidance for withdrawing collection assistance request when the taxpayer has not full paid. Furthermore, the IRS will consult with the Treasury Department Office of Tax Policy to determine if the United States could benefit by adopting mutual collection assistance with any additional countries.
To view the report, including the scope, methodology, and full IRS response, go to: http://www.treasury.gov/tigta/auditreports/2017reports/201730077fr.pdf.