The Internal Revenue Service recently received a significant boost in its quest to collect the dues which it is rightfully owed. In an important bit of IRS Tax News, 77,000 foreign financial institutions in nearly 70 countries agreed to share tax information with the IRS. This historic announcement marks a milestone in the agency’s quest to combat international tax evasion.
As part of the agreement, banks and investment funds agreed to share information with the IRS about American citizens who own accounts at their institutions. The participating institutions include banks from Switzerland, the Bahamas and the Cayman Islands, each of which has a reputation for being tax havens. As of March 2015, these institutions began sharing names, account numbers and balances for U.S. account holders with the IRS.
Surprisingly, 515 Russian institutions are part of the agreement. This inclusion is despite the fact that these institutions were required to apply directly to the IRS to be part of the agreement because of halted communications stemming from the Ukraine conflict. The number of cooperating institutions is expected to rise in the coming weeks.
Honest taxpayers are unlikely to be directly impacted by this agreement. After all, tax evasion is illegal. Nonetheless, the agreement could have significant indirect consequences for all U.S. taxpayers. Specifically, this agreement should free up IRS employees investigating tax evasion internationally, providing more resources to seek out domestic instances of tax fraud. The knock-on effect result in more closely examined tax returns and more frequent audits. That said, honest taxpayers have little to fear, especially those with incomes under $200,000.
On the other hand, this news seems to signal the beginning of a commitment by the IRS to work more closely with foreign institutions regarding international tax issues. In an increasingly globalized world, more of today’s workforce completes assignments for international employers and clients. Anyone who has ever worked with or for a foreign company understands the hoops taxpayers must jump through come tax time. But with continued international cooperation, these hoops could diminish. That’s good news.
However the situation plays out, it bears monitoring. For now, all we know is that despite recent foreign political challenges, the U.S. government and its agencies – including the IRS – are willing to work with their international counterparts on lowering financial crimes. That’s even more good news.