How the IRS is Curbing Tax Evasion

Posted on November 26, 2022

How the IRS is Curbing Tax Evasion

Curbing tax evasion is difficult because taxes can be evaded both legally and illegally. Taxes are evaded legally using loopholes in the tax code. The recent case of Apple Inc. involved evasion of taxes using legal means such as creating a subsidiary of the company in a country, in this case, Ireland, with a much lower corporate tax rate.

Evasion of taxes through legal means is more difficult to curb because its prevention can only be achieved by making changes in the tax code. Illegal evasion of taxes, on the other hand, can be reduced through strict punishment and effective prevention methods. One such prevention method is the Foregin Account Tax Compliance Act (FATCA). It allows the IRS to receive information about the financial accounts and assets of U.S. taxpayers in foreign countries. The IRS has made agreements under FATCA with various countries, including Switzerland and France.

Both individuals and financial entities are required to report assets, including bank accounts, to the IRS if a U.S. taxpayer has a considerable stake in it. U.S. taxpayers that have bank accounts and assets in foreign countries are required to report them to the IRS. The purpose of such transparency is to bring down tax evasion.

The IRS has, this year, taken important steps to curb tax evasion. Apart from FATCA, in its efforts to improve compliance, the agency has been investigating tax evasion by multinational corporations. The efforts of the IRS are expected to increase revenue by billions annually.

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