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April 8, 2017


New York City Takes Aim at Tax Evaders

New York City recently got clearance from the U.S. Treasury Department to use a sophisticated financial data tracking service to aid in municipal tax evasion investigations.

The Financial Crimes Enforcement Network, or FinCEN, is a comprehensive database of financial information. FinCEN can track major cash transactions, suspicious activity and the transfer of large sums of money overseas. FinCEN is only one tool in the IRS’s arsenal of weapons against tax evasion. Another tool the IRS uses to seek out instances of tax evasion is its whistleblower program. If an individual reports knowledge of another person evading taxes, the whistleblower may receive up to 30 percent of the collected funds and penalties.

Until now, only the IRS had access to FinCEN’s data. New York City is the first municipality to be granted use of the database. The city is the fifth-largest tax collector in the country, behind the IRS, Texas, California and New York State; it collects $37 billion per year in taxes. Access to FinCEN allows municipal law enforcement to track tax evaders.

In addition to FinCEN access, the New York City Finance Department has hired many new tax auditors, and may hire more if the need arises. The Finance Department may also develop a whistleblower program similar to that of the IRS.

The use of FinCEN in New York City may lead other cities to consider procuring access to the database. The impact of a nationwide adoption of FinCEN in large cities may make it easier for authorities to investigate persons or companies suspected to committing tax evasion, and would allow municipalities to track the financial activity of its residents if it suspects illegal activity. In New York City alone, unreported income may result in billions of dollars of uncollected taxes. If those funds were collected, the impact on municipal budgets could be substantial.