Yellen should use available resources before pushing new regulations



secretary of the treasury Janet YellenJanet Louise YellenDems seeks to keep billionaire tax in spending bill IMF economist expects inflationary pressure until mid-2022 shows Sunday – Democrats’ spending plan in the spotlight MORE presides over such a vast array of financial information database silos that she could be forgiven for not knowing how they’re all used – or not used, as the case may be. But that hasn’t stopped her from asking for even more information reports to provide her agency with clues to increase tax compliance. But there are monetary costs and, perhaps more importantly, costs in terms of confidence in implementing such a strategy.

Yellen is the contact for the controversial legislative demand to compel the U.S. banking system to produce input / output information regarding U.S. bank account holders and material bank transactions to the IRS to facilitate tracking by the IRS Potential Unreported Income. The theory is that more bank reports on taxpayers / bank customers would help to calculate and assess the increase in tax revenue. Since banks are already required to report annual individual interest and dividend income via Form 1099 to IRS service centers located across the United States, why not extend this requirement and ask banks to report entry and exit transactions – which total over $ 600 as initially suggested, or $ 10,000 as President of House Ways & Means Richard nealRichard Edmund NealPelosi: Democrats within reach of the deal The Hill’s Morning Report – Featured by Uber – Manchin, Sanders in budget feud; Biden still optimistic Democratic frustration with Sinema increases MORE (D-Mass.) Countered – during the year?

Indeed, at first glance, the idea seems good. There is currently an expanding overall government deficit, the repayment of which will likely weigh on future generations – and a yawning “Tax Gap” between what is reported to Uncle Sam and what should be reported. And then there are the expensive Democratic budget proposals to justify and hopefully pay for in the future, not to mention the Republican-sponsored tax cuts for businesses and the rich who never got paid.

But first, Yellen should explain how – and for what purpose – some of the other database reports maintained by the US Treasury are used.

My last job (over five years ago) was as an entrepreneur with the Department of Justice, where I was in charge of “tracking money” from cartel activities. I became familiar with the databases contained in the Financial Crimes Enforcement Network (FinCEN). The amount of information available to law enforcement for criminal investigation was astounding. As I tried to do money laundering business and confiscate the assets of major drug traffickers, I couldn’t help but wonder what the IRS could do to tackle the “tax gap” whether it could apply all the data contained in FinCEN to the tax returns contained in their service centers.

For example: Banks are already required to report Foreign Currency Transactions Reports (CTRs) over $ 10,000 made on their premises to FinCEN. Millions of these currency transaction reports are filed with FinCEN each year under threat of civil and criminal penalties if the bank does not. There is a cost incurred by the banks to produce these CTRs. What is the return to the Treasury and the police with regard to these deposits? And most importantly, what is the IRS doing with all these CTRs? Are they associated with the declarations of individual taxpayers? If so, what tax revenues did they generate? Does the Treasury know? Does the IRS know? Does anybody? Where are the reports describing exactly how these CTRs are being used and the total return versus the cost of producing and maintaining them?

For the record, CTRs are used by law enforcement to identify drug traffickers, racketeers and other crooks. It is also known – again anecdotally – that when banks recognize that shady characters may ‘structure’ their cash transactions or conduct other murky financial transactions, banks often file reports of suspicious activity (SAR ) from FinCEN (more than one million in 2019). The SAR provided productive leads to law enforcement for a successful criminal investigation of well-known criminals as Paul ManafortPaul John ManafortHuawei paid Tony Podesta 0K for White House lobbying., Elliot Spitzer, and Dennis HastertJohn (Dennis) Dennis HastertFeehery: Trumpus Rex Bottom line Feehery: Rebuilding the two-party system MORE.

The anecdotal news is nice. The empirical evidence is much better, especially when Uncle Sam wants to poke his nose into personal bank accounts.

Each year, the IRS produces a data mining report to Congress as needed. The latest available report covers 2019. Although the IRS notes that it uses the aforementioned reports as avenues for criminal investigation, it does not provide any empirical data as to the effectiveness of these reports in terms of charges or prosecutions. The IRS provides even less empirical data on the effectiveness of its own data mining programs in terms of the number of civil audits / reviews generated by their data mining efforts – let alone the amount of revenue. generated. The 2019 report indicates that no empirical data is available on the effectiveness of three IRS data mining programs.

The CTR and SAR databases are two of the best-known FinCEN databases, maintained for years by the US Treasury, but little is known empirically about their overall effectiveness.

The Treasury and IRS should answer a few basic questions before anyone finds Yellen’s old argument credible that a new bank reporting requirement is needed to increase tax revenue: What is the overall cost to banks? produce CTRs and SARs? How many criminal investigations, prosecutions and convictions exactly resulted from the reports filed? And most importantly, what taxes were assessed and collected as a result of filing CTR and SAR?

There are also other bank databases within FinCEN – less well known, but which certainly have the potential to fill the shortfall: foreign wire transfers over $ 10,000 and reports on foreign bank and financial accounts ( FBAR). These databases are deemed to be used most often by federal law enforcement agencies to track drug proceeds and money laundering activities, particularly foreign-based financial transactions in the case of FBARs. . While some people may recall that Paul Manafort did not file an FBAR regarding his bank account and his shell company transactions in Belize and Cyprus, how many other wealthy U.S. taxpayers (the purported goal of Yellen for increased tax revenue) have all of their six-figure overseas bank accounts declared? Does the IRS make good use of FBARs to track offshore money transactions that represent income? What about foreign wire transfers flowing into domestic personal bank accounts? Do they correlate with tax returns and / or FBARs? Does anyone know? If not, why not?

The recently released Pandora Papers highlight the widespread use of offshore shell companies and bank accounts by the wealthy to hide their untaxed wealth. These offshore arrangements are frequently facilitated by specialist law firms, accountants, financial advisory firms, and corrupt banks and bankers. U.S. government officials recognized this problem years ago and passed the Foreign Account Tax Compliance Act (FATCA) which requires foreign banks to report the possession by U.S. taxpayers of foreign bank accounts and other valuable assets. of particular value.

Again, the Treasury and IRS should answer a few basic questions: Where are the reports on the effectiveness of FATCA? Has FATCA been fully implemented? Are foreign banks in compliance? What income has been generated? What was the return on investment under the law? Certainly, domestic US banks would like to know how their foreign counterparts have handled this legal requirement.

To my knowledge, there is no prohibition on the IRS using the aforementioned data silos in conjunction with other income measurement activities.

Yellen is expected to send Congress a set of reports detailing the effectiveness of each of the databases managed by its agencies in terms of their impact on improving revenue before requiring financial institutions to issue another intrusive client report collecting digital dust in a barely used database.

Congress – and ordinary taxpayers – should be interested and should know: is the IRS effectively using all of the data referenced above? If so, how? How much income has been identified from these reports? How many taxes have been collected? If the information in the databases referenced above is effective, then why are additional bank statements on taxpayer banking activity required?

And Congress shouldn’t be allowed to get off the hook here. Lawmakers should ensure that the IRS has the resources to effectively track and correlate all of FinCEN’s open databases with tax returns.

Currently, the IRS still uses computers and software from the 1960s and has desperately needed – for decades – updated and automated computer equipment, software, and resources to maximize the use of all available resources. A minimal investment in new IT resources and expertise would certainly pay off more than simply forcing banks to provide more reports that cost us all both in cash and in confidence.

Let’s ensure that all data available to the Treasury and IRS is optimally used to increase revenue before we legislate new requirements for banks to issue new reports on clients who may or may not violate expectations in this area. confidentiality.

Martin J. Sheil is a retired IRS Criminal Investigations Supervisory Officer with 30 years of experience, including as the Coordinator of the Organized Crime Drug Enforcement Task Force (OCDETF) for the Coast Region. of the Gulf, Branch Manager for the District of North Texas (Dallas), Special Agent in Charge of the District of South Texas (San Antonio) and as Director of IRS CI Asset Forfeiture in Washington, DC


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