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Newsletter | Articles Reducing the Federal Tax Gap The IRS and US Treasury have issued a report on the methods they are to adopt to raise the percentage of tax liabilities collected from 86 per cent in 2001 to 90 per cent in 2017. Part of the strategy addresses the illegal use of offshore centres, and importantly, further measures to regulate legitimate offshore activity. The report, issued on August 2, 2007, sets out the strategy for narrowing the tax gap. With reference to the world of offshore the report says: Offshore activity – Taxpayers who engage in offshore activity for the purposes of underreporting income or participating in a tax haven taxation regime must be addressed. The IRS is improving its ability to identify these cases and the specialized skills of the examiners who handle them. To address offshore and cross-border compliance risks (through enforcement and by issuing guidance), the IRS has formed Issue Management Teams in the following areas: Cost sharing Abusive foreign tax credit generators Section 936 exit strategies Foreign earnings repatriation Hybrid instruments and Transfer pricing Enhance the ability to identify and address tax schemes of business and individuals involving offshore activity, address illegitimate use of tax havens to shelter income, and increase information matching and examination activity for individuals living abroad. Tax Treaties and Tax Information Exchange Agreements (TIEAs) are two additional important tools in addressing and enhancing international compliance through the exchange of information with other national tax authorities. Milestones for this year include: Develop compliance initiative projects in the areas of private banking and offshore merchant accounts to address offshore non-compliance. Initiate a project on foreign athletes and entertainers to ensure appropriate reporting and sourcing of income. Issue regulations on transfer pricing, foreign tax credit and foreign trusts. ILS will keep you informed of developments. For more information contact Peter Beighton.