Internal Revenue Service: Challenges Remain in Combating Abusive Tax Schemes Page: 15 of 32
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In January 2003, IRS began a voluntary compliance initiative to identify
promoters and to return to tax law compliance taxpayers who use offshore
payment cards to hide income. Under the initiative, eligible taxpayers
stepping forward before April 16, 2003, would not pay certain penalties and
would not face criminal prosecution, pending acceptance into the program.
However, they would agree to provide full details on promoters of offshore
arrangements. They would also pay previously owed taxes, interest, and
certain other penalties. In addition to this voluntary compliance initiative
and to the summonses, the Department of the Treasury has entered into tax
information exchange agreements with offshore financial centers to further
improve the federal government's information collection.4
On July 30, 2003, IRS announced that 1,299 taxpayers stepped forward to
participate in the voluntary compliance initiative, and that analyzing cases
to date revealed 214 new offshore promoters. According to SB/SE's Deputy
Director, Compliance Policy, as of mid-September 2003, the initiative had
led to collecting more than $100 million in tax, a figure that continues to
grow. The 1,299 taxpayers who volunteered is a small number compared to
early reports of the scope of the problem. However, according to IRS
officials, the reality of promoters being identified by taxpayers gives IRS
data on the source of the problem and a wealth of information that can be
used to further investigate abusive schemes. They said IRS was in the early
stages of receiving and following up on completed packages of
information, but it had already received valuable information on how
promoted schemes worked. In addition, instead of stepping forward, IRS
officials say some taxpayers seem to have filed amended tax returns,
bringing themselves into compliance in a different way. IRS did not yet
know the number of amended returns that arrived as a result of the
initiative.
For the abusive schemes shown in table 1, SB/SE's fiscal year 2003 plans
called for developing an inventory of schemes and their status, working out
a more detailed overall strategy, and developing and implementing a
process to oversee and manage IRS's efforts to combat abusive schemes
and promoters. In general, SB/SE officials saw fiscal year 2003 as a
transition year in which to build an infrastructure for full implementation
of a strategy in fiscal year 2004. To develop inventory information, SB/SEGAO-04-50 Challenges in Combating Abusive Tax Schemes
4Between November 2001 and November 2002, Treasury entered into agreements with the
Cayman Islands, Antigua and Barbuda, The Bahamas, the British Virgin Islands, the
Netherlands Antilles, Guernsey, the Isle of Man, and Jersey.Page 12
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United States. General Accounting Office. Internal Revenue Service: Challenges Remain in Combating Abusive Tax Schemes, report, November 19, 2003; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc291496/m1/15/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.