Every year, the IRS targets a wide variety of tax frauds by corporations and individuals:
Illegal tax shelters created for the sole purpose of evading taxes. Common examples include fictitious retirement plans, abuse of partnerships and tax-exempt organizations, improper stock and deferred compensation agreements, and many other complex financial arrangements designed to create improper tax results. The IRS maintains an Office of Tax Shelter Analysis focused on combating these abusive tax shelters and transactions.
Hiding income using offshore tax havens and shell companies and trusts.
Failing to report earnings from cryptocurrency transactions, which the IRS treats as income.
Improperly claiming tax credits, particularly tax credits for fuels, renewable energy, and employee retention.
When it comes to enforcement, the IRS frequently targets those who design and promote these schemes. The Service has established an Office of Promoter Investigations focused exclusively on detecting and deterring abusive tax promoters, enablers, and tax return preparers.
In addition to investigating tax underpayments, the IRS also has the authority to penalize taxpayers for failing to file a Report of Foreign Bank and Financial Accounts (FBAR). Under the Bank Secrecy Act, U.S. citizens, residents, corporations and other entities must file FBAR reports if they have a financial interest in or authority over one or more foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year. The penalties for failing to file can be substantial. For willful violations, the penalty can reach up to the higher of $100,000 or 50% of the account balances that the person fails to report. In egregious cases, the Department of Justice can also criminally prosecute the failure to file FBAR reports.
The IRS relies heavily on whistleblowers to shut down these tax schemes. From the outside looking in, it is often impossible to tell when a company is hiding assets overseas or failing to report significant income. As a result, insiders play a critical role in alerting the IRS to otherwise undetectable frauds. But whistleblowers do not have to be insiders. Tax-shelter promoters constantly recruit new taxpayers, and those innocent taxpayers can report the schemes to the IRS. And sometimes, tax experts can detect tax evasion through complex analysis. Whether insider or outsider, whistleblowers play an indispensable role in helping the IRS collect hundreds of millions of dollars in unpaid taxes each year.
