IRS Succeeding with International Tax Compliance Efforts

A unit set up by the Internal Revenue Service to improve international tax compliance by individuals is paying off, according to a new government report, enabling IRS auditors to assess an additional $36 million in taxes for fiscal years 2011 to 2013.

The report, from the Treasury Inspector General for Tax Administration, found that the International Campus Compliance Unit, or CCU, appears to be working. The IRS set up the unit as part of its strategic plan to address international tax compliance. Other facets of the effort have also led to agreements with Swiss banks to turn over lists of customers, along with offshore voluntary disclosure initiatives that allow taxpayers with foreign bank accounts to come forward voluntarily.

The IRS expects the CCU to enhance efforts to expand audit coverage of tax returns with international aspects and to increase compliance among international individual taxpayers.

For its report on the CCU, TIGTA reviewed the IRS’s efforts to establish the CCU to determine whether the benefits envisioned in improving international individual tax compliance are being achieved. TIGTA found that the IRS successfully planned the CCU and followed general government guidelines and steps for implementing a new business process during the planning. The IRS is still developing inventory selection criteria for the CCU. However, for fiscal years 2011 through 2013 (through March 13, 2013), the CCU conducted almost 18,000 audits and assessed approximately $36 million in additional tax.

“This program appears to be a step in the right direction,” said TIGTA Inspector General J. Russell George in a statement. “As globalization expands, so do concerns about the international tax gap—that is, taxes owed but not collected on time from a U.S. person or foreign person whose cross-border transactions are subject to U.S. taxation.”

George noted that more needs to be done, adding that despite the CCU’s early accomplishments, it does not have specific performance measures for its operations. “Ideally, an agency should have measures for all its major processes to track costs, quality and timeliness,” he said.

TIGTA recommended that the IRS enhance the performance measures for the CCU to more specifically reflect the work performed by CCU examiners. The IRS agreed with this recommendation and plans to evaluate the current performance measures and CCU inventory results to determine how to enhance the performance measures specific to work performed by CCU examiners. The IRS also plans to use these performance measures to establish effective performance goals and measure the CCU’s success in achieving them.

The IRS is also taking steps to ramp up its international tax compliance efforts for corporations after reorganizing the unit responsible for conducting such audits. “As you report indicates, the IRS continues to realign and expand its international efforts under the Large Business and International (LB&I) Division,” wrote Paul D. DeNard, acting commissioner of the LB&I Division, in response to the report. “We expect that these efforts will improve international tax compliance by focusing on high-risk international issues and examination cases in a consistent and efficient way.”