The Internal Revenue Service is looking for your international tax data--that is, if the IRS doesn't already have it. With the rollout of the Foreign Account Tax Compliance Act (FATCA) and other automatic exchange-of-information (EOI) procedures, the IRS is now receiving--and making use of--a large amount of international tax information about U.S. taxpayers.
In 2017, the Treasury Inspector General for Tax Administration (TIGTA) recommended a number of changes regarding the IRS' use of EOI, and the IRS has begun using data analytics to make EOI information a formidable resource for identifying taxpayers and specific tax issues for examination. Currently, more IRS employees have expanded access to automatic EOI information, and IRS employees are making greater use of specific EOI requests.
U.S. borders are no longer major barriers to IRS discovery. It is now not at all uncommon to meet the IRS or DOJ in a foreign jurisdiction, particularly for interviews or testimony. Below is an overview of the major EOI techniques in use and a discussion of best practices and key defenses to EOI requests.
Information-Gathering Methods-Old Standards and New Conventions
The IRS is permitted to exchange tax information internationally through a number of different treaties, agreements, and conventions. To a greater degree, IRS employees now also use informal means to obtain international information.
BILATERAL TAX TREATIES AND TIEAS
Still the primary ways that the IRS obtains international tax information, income tax treaties and tax information exchange agreements (TIEAs) provide mechanisms for requests for information from foreign taxing authorities. Although taxpayer-specific requests under treaties and TIEAs in audits are perhaps the most familiar, the agreements are used for other types of information exchange, including spontaneous exchanges and automatic exchange of fixed, determinable, annual, or periodic (FDAP) income information.
Furthermore, several tax treaties allow for specific requests to aid tax collection and grant collection authority. TIGTA has recommended the heightened use of such requests, known as mutual collection assistance requests.
MLATS AND OTHER CRIMINAL INVESTIGATION TOOLS
Mutual legal assistance treaties (MLATs) and other conventions authorize treaty partners to secure evidence in foreign jurisdictions for use in criminal proceedings. Not all MLATs allow for EOI in tax cases. Also, many income tax treaties and TIEAs allow the...