Office of Audit
THE INTERNAL REVENUE SERVICEíS BANK SECRECY ACT PROGRAM HAS MINIMAL IMPACT ON COMPLIANCE
Final Report issued on September 24, 2018
Highlights of Reference Number:† 2018-30-071 to the Commissioner of Internal Revenue.
IMPACT ON TAXPAYERS
The Currency and Foreign Transactions Reporting Act of 1970 requires U.S. financial institutions to assist U.S. Government agencies in detecting and preventing money laundering and to assist U.S. persons in reporting foreign bank and financial accounts.† The law has been amended several times and is now known as the Bank Secrecy Act (BSA).† The IRS received delegated authority to enforce the BSAís criminal provisions and examine certain nonbank financial institutions. †The IRS also has authority to examine trades and businesses for compliance with Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, under Internal Revenue Code Title 26 and 31 and authority to assess penalties under Title 26.† However, the Financial Crimes Enforcement Network (FinCEN) retains the final authority to impose Internal Revenue Code Title 31 civil penalties.
WHY TIGTA DID THE AUDIT
This audit was initiated to evaluate the impact of the IRSís compliance efforts related to its delegated authority under the BSA.
WHAT TIGTA FOUND
The IRS Small Business/Self-Employed Division conducts BSA compliance activities through its Specialty Examination function, which has a dedicated BSA Program.† TIGTA reviewed a statistically valid random sample of 140 compliance cases from a population of 24,212 closed cases worked by the BSA Program for Fiscal Years 2014 through 2016 and found that 105 (75 percent) were closed with 383 Title 31 violations in which the respective business only received a letter citing the violations found.† For the same fiscal year period, TIGTA found that 1) referrals to the FinCEN of Title 31 penalty cases go through lengthy delays and have little impact on BSA compliance; 2) the BSA Program spent about $97 million to assess approximately $39 million in penalties; and 3) while referrals were made to IRS Criminal Investigation, most of the investigations were declined and less than half of the cases were accepted.
Additionally, a September 2016 TIGTA report addressed the need for the IRS to incorporate BSA Program personnel in developing its virtual currency strategy; however, the IRS has still not effectively used the BSA Program in this area.† TIGTA also found that until June 2017, the BSA Program did not require Publication 1, Your Rights as a Taxpayer, as a required enclosure to notify taxpayers of their rights when initiating a Form 8300, Title 26 examination, and some examiners still are unaware of the change that requires taxpayers to be notified of their rights.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS: 1) coordinate with the FinCEN on the authority to assert Title 31 penalties or reprioritize resources to more productive work; 2) leverage the BSA Programís Title 31 authority and annual examination planning in the development of the IRSís virtual currency strategy; 3) notify examiners of new appointment letter enclosures that includes Publication 1; 4)† evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and 5) improve the process for referrals to IRS Criminal Investigation.† The IRS agreed with four of the five recommendations.† The IRS will incorporate its virtual currency strategy into its Title 31 compliance efforts; provide BSA examiners guidance on appointment letter enclosures; review and improve the FinCEN referral process; and review the BSA criminal referral criteria to maximize efficiency and enhance BSA referrals to Criminal Investigation.† However, the IRS disagreed with pursuing Title 31 penalty authority stating it was outside its purview and that the FinCEN intends to retain this authority
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number ††/† 202-622-6500
E-mail Address †/†