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Anti-Terrorist/Anti-Money Laundering Information-Sharing by Financial Institutions under FINCEN’s Regulations, CRS Legal Sidebar (December 10, 2014)

December 18, 2014 Comments off

Anti-Terrorist/Anti-Money Laundering Information-Sharing by Financial Institutions under FINCEN’s Regulations, CRS Legal Sidebar
Source: Congressional Research Service (via Federation of American Scientists)

Information-sharing programs developed by Treasury’s Financial Crimes Enforcement Network (FINCEN) to implement section 314 of the USA PATRIOT Act have been designed to aid law enforcement investigation and prosecution of money laundering and terrorist financing. Because funds from criminal activity and funds headed to terrorist organizations must pass through the financial system, the FINCEN information-sharing programs have been the means of quickly identifying financial transactions tied to crimes or terrorist organizations under investigation. The section 314 programs supplement more general Bank Secrecy Act requirements, such as the Currency Transaction Reports (CTRs) on cash transactions of $10,000 or more, and the Suspicious Activity Reports (SARs) on transactions suspected to involve criminal activity.

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TIGTA — IRS Needs to Do More to Reduce Risk of Improper Payments of EITC and ACTC

December 12, 2014 Comments off

IRS Needs to Do More to Reduce Risk of Improper Payments of EITC and ACTC
Source: Treasury Inspector General for Tax Administration

Although the Internal Revenue Service (IRS) is required by law to quantify or identify and take actions to address the root causes of improper payments in Federal programs identified as being at high risk, it has only acknowledged one program – the Earned Income Tax Credit program – as being at high risk for improper payments.

According to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA), another tax credit program, the Additional Child Tax Credit, is also at high risk of improper payments, although the IRS has not identified it as such.

The Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) are refundable credits designed to help low-income individuals reduce their tax burden. The IRS estimated that it paid $63 billion in refundable EITCs and $26.6 billion in refundable ACTCs for Tax Year 2012. The IRS also estimated that 24 percent of all EITC payments made in Fiscal Year 2013, or $14.5 billion, were paid in error.

While the IRS has developed processes to identify improper EITC payments and their root causes, it has not developed processes to quantify or identify the root causes of improper ACTC payments, according to TIGTA’s report. The EITC is used to offset the impact of Social Security taxes on low-income families and to encourage them to seek employment. The ACTC is used to adjust the individual income tax structure to reflect a family’s reduced ability to pay taxes as family size increases.

This audit was initiated because the IRS is required to identify and take actions to address the root causes of improper payments in Federal programs identified as being at high risk for improper payments. Under the Improper Payments Elimination and Recovery Act of 2010, a program is defined as having significant improper payments when improper payments exceed both 2.5 percent of program outlays and $10 million of all program payments made during the fiscal year. The overall objective of this review was to assess the IRS’s efforts to identify and address the root causes of erroneous EITC and ACTC payments.

Using IRS data, TIGTA estimates the potential ACTC improper payment rate for Fiscal Year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.

TIGTA — IRS Has Insufficient Controls Over the Outside Employment of IRS Employees

December 3, 2014 Comments off

IRS Has Insufficient Controls Over the Outside Employment of IRS Employees
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) has insufficient controls over the outside employment or business activities of its employees, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

Generally, IRS employees are allowed to engage in outside employment or business activities after obtaining written approval. Effective controls over outside employment can reduce the risk of conflicts of interest that could result in decisions that are not in the best interest of American taxpayers.

The overall objective of TIGTA’s audit was to determine whether the IRS has controls in place to provide reasonable assurance that outside employment requests are documented and reviewed for conflicts with employees’ official duties.

IRS records indicate that, in Calendar Year 2011, nearly 3,000 of the more than 6,000 active, full-time IRS employees who held jobs or participated in business activities outside the IRS did not have approval for outside employment or the activities were not documented on the IRS’s Outside Employment System as required. IRS Human Capital Office management was generally not aware of the number of employees with unapproved outside employment because responsibility has not been assigned for overseeing the overall outside employment process. In addition, the IRS stated that it does not have authorization to use taxpayer information (e.g., Form W 2, Wage and Tax Statement) to identify employees with unapproved outside income because Internal Revenue Code Section 6103 does not clearly provide that tax data can be used for this purpose.

“Our report found that it will be difficult for the IRS to monitor outside employment because 93 percent of the existing records in the database used to compile outside employment requests are out of date,” said J. Russell George, Treasury Inspector General for Tax Administration. “Moreover, approval of outside employment requests is not always documented on the database or in Official Personnel Folders, in part because of confusing and incomplete guidance.”

The Internal Revenue Service Advisory Council (IRSAC) Releases 2014 Annual Report

November 25, 2014 Comments off

The Internal Revenue Service Advisory Council (IRSAC) Releases 2014 Annual Report
Source: Internal Revenue Service

The Internal Revenue Service Advisory Council held its annual public meeting today and released its annual report, which includes recommendations on a wide range of tax administration issues.

IRSAC is an advisory group to the entire agency. IRSAC’s primary purpose is to provide an organized public forum of relevant tax administration issues for the Commissioner, senior IRS executives and representatives of the public to discuss relevant tax issues.

IRSAC members convey the public’s perception of professional standards and best practices for tax professionals and IRS activities; offer constructive observations regarding current or proposed IRS policies, programs, and procedures; and suggest improvements to IRS operations.

Based on its findings and discussions, IRSAC made several recommendations on a broad range of issues and concerns including IRS funding, as well as topics identified by subgroups covering the Office of Professional Responsibility and Large Business and International, Small Business/Self-Employed and Wage and Investment operating divisions.

IRSAC is administered by the National Public Liaison Office. IRSAC draws its members from the tax professional community and members of academia.

TIGTA — Improvements Are Needed to Ensure That the Search and Seizure Warrant Process Is Adequately Documented and That Evidence Is Properly Secured

November 5, 2014 Comments off

Improvements Are Needed to Ensure That the Search and Seizure Warrant Process Is Adequately Documented and That Evidence Is Properly Secured
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) does not always follow all procedures to ensure that evidence it seizes is properly stored and controlled, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

Each IRS Criminal Investigation (CI) special agent has the authority to perform all duties under all laws and regulations administered by the IRS, including the authority to conduct searches and issue search and seizure warrants.

TIGTA’s audit was initiated to determine whether CI is properly processing search and/or seizure warrants and following the policies for maintaining the chain of custody for any evidence obtained.

TIGTA requested 152 closed search and/or seizure warrant cases from the IRS to review. However, CI management did not provide 91 of these cases. According to CI management, these cases contained grand jury information, were part of an ongoing investigation, or had been sealed by the court.

For 70 of these cases, CI management could not provide any documentation to support that these cases contained grand jury information, were part of an ongoing investigation, or were sealed. As such, TIGTA had to rely on CI management’s verbal statements. This constitutes a significant scope impairment because it prevented TIGTA from fully evaluating CI’s processing of search and seizure warrants and from determining whether the IRS is following established legal requirements to prevent the abuse of taxpayer rights.

However, TIGTA was able to review the remaining 61 closed search and/or seizure warrant cases provided by the IRS and found that 14 cases were missing documentation of the Criminal Tax Counsel’s post-search warrant inventory review, were missing signed affidavits, and/or contained errors on their search warrants.

“Our report found that procedures were not always followed to ensure that seized evidence was properly stored and/or controlled,” said J. Russell George, Treasury Inspector General for Tax Administration. “Without maintaining proper documentation and following evidence procedures, evidence may be inappropriately disclosed, lost, tampered with, or stolen.”

TIGTA — The Internal Revenue Service Needs to Enhance Its International Collection Efforts

November 3, 2014 Comments off

The Internal Revenue Service Needs to Enhance Its International Collection Efforts (PDF)
Source: Treasury Inspector General for Tax Administration
From press release:

As international tax noncompliance remains a significant area of concern for the Internal Revenue Service (IRS), its collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

The overall objective of TIGTA’s review was to evaluate the IRS’s collection efforts on delinquent taxpayers residing in foreign countries. Income received from international transactions of these taxpayers is subject to U.S. tax rules and reporting requirements.

“The IRS faces many unique challenges in collecting taxes from international taxpayers,” said J. Russell George, Treasury Inspector General for Tax Administration. “In today’s global economy, businesses and individuals are becoming more and more involved in international transactions. Accordingly, the role of an international revenue officer is very important in helping taxpayers comply with the tax laws and improving international tax compliance.”

TIGTA’s review found that ineffective management oversight has contributed to several control weaknesses in the International Collection program. Moreover, the IRS does not have reliable statistics on the rate of noncompliance of these taxpayers with their U.S. tax obligations.

For example, International Collection does not have:

• Adequate policies, procedures, position descriptions, or the training needed to ensure that international revenue officers can properly work International Collection cases.

• A specific inventory selection process that ensures that the International Collection cases with the highest risk are worked.

• Performance measures and enforcement results reported separately from Domestic Collection.

• A process to measure the value of the “Customs Hold” as an enforcement tool.

TIGTA recommended that the IRS: 1) develop a formal International Collection Strategic plan; 2) update International Collection guidance to provide specific policies and procedures to international revenue officers; 3) evaluate and update the current international revenue officer position descriptions; 4) develop a formal International Collection training plan using Subject Matter Experts to develop and teach international specific courses; 5) evaluate the International

Collection inventory selection criteria; 6) develop separate performance measures and track specific enforcement results for International Collection; and 7) continue to pursue direct access to the Customs Hold information.

IRS officials agreed with all of TIGTA’s recommendations and have taken or plan to take corrective actions. However, while the IRS has implemented some corrective actions to improve the selection of International Collection inventory, develop separate performance measures, and track enforcement results, TIGTA does not believe that the IRS’s completed corrective actions fully addressed the recommendations.

IRS — In 2015, Various Tax Benefits Increase Due to Inflation Adjustments

October 30, 2014 Comments off

In 2015, Various Tax Benefits Increase Due to Inflation Adjustments
Source: Internal Revenue Service

For tax year 2015, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2014-61 provides details about these annual adjustments.

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