Tax Administration: Additional Time Needed to Complete Offshore Tax Evasion Examinations

GAO-07-237 Published: Mar 30, 2007. Publicly Released: May 03, 2007.
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Much offshore financial activity is not illegal, but numerous illegal offshore schemes have been devised to hide or disguise the true ownership of income streams and assets. IRS studies show lengthy development times for some offshore cases, which suggests that time or the lack thereof could be an impediment to effectively addressing offshore schemes. GAO was asked to (1) compare offshore and nonoffshore examination cases and determine whether the 3-year statute of limitations reduces offshore assessments, (2) compare enforcement problems posed by offshore cases to those where Congress has previously granted an exception to the statute, and (3) identify possible advantages and disadvantages of an exception to the statute for offshore cases. To address these objectives, GAO analyzed IRS data, reviewed examination files and other documents, and interviewed IRS officials and others in the tax practitioner and policy communities.

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Matter for Congressional Consideration

Matter Status Comments
In order to provide IRS with additional flexibility in combating offshore tax evasion schemes, Congress may wish to make an exception to the 3-year civil statute of limitations assessment period for taxpayers involved in offshore financial activity. Similar to Congress's approach to unreported listed transactions, Congress may wish to establish a process wherein IRS would identify the types of offshore activity to which a statute exception would apply.
Closed – Implemented
On March 18, 2010, the President signed the Hiring Incentives to Restore Employment Act, which extended to six years the statute of limitations for omissions exceeding $5,000 and 25 percent of reported gross income derived from foreign assets. The extension is effective for returns filed after the date of enactment or for any return filed on or before that date if the section 6501 assessment period for that return has not expired as of the date of enactment.

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